Optimal dynamic pricing for deteriorating items with reference-price effects

Musen Xue, Wansheng Tang and Jianxiong Zhang

International Journal of Systems Science, 2016, vol. 47, issue 9, 2022-2031

Abstract: In this paper, a dynamic pricing problem for deteriorating items with the consumers’ reference-price effect is studied. An optimal control model is established to maximise the total profit, where the demand not only depends on the current price, but also is sensitive to the historical price. The continuous-time dynamic optimal pricing strategy with reference-price effect is obtained through solving the optimal control model on the basis of Pontryagin's maximum principle. In addition, numerical simulations and sensitivity analysis are carried out. Finally, some managerial suggestions that firm may adopt to formulate its pricing policy are proposed.

Date: 2016
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Citations: View citations in EconPapers (14)

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DOI: 10.1080/00207721.2014.970598

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