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Joint Pricing and Inventory Control under Reference Price Effects

Book Series: Forschungsergebnisse der Wirtschaftsuniversitaet Wien ISBN: 9783631589137 Year: Pages: 124 DOI: 10.3726/b13901 Language: English
Publisher: Peter Lang International Academic Publishing Group
Subject: Business and Management
Added to DOAB on : 2019-01-15 13:32:26

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In this work, we address the problem of simultaneously determining a pricing and inventory replenishment strategy under reference price effects. This reference price effect models the fact that consumers not only react sensitively to the current price, but also to deviations from a reference price formed on the basis of past purchases. Immediate effects of price reductions on profits have to be weighted against the resulting losses in future periods. By providing an analytical analysis and numerical simulations we study how the additional dynamics of the consumers’ willingness to pay affect an optimal pricing and inventory control model and whether a simple policy such as a base-stock-list-price policy holds in such a setting.

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