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Electronic price-testing scheme for fashion retailing with information updating

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  • Choi, Tsan-Ming
  • Chow, Pui-Sze
  • Xiao, Tiaojun

Abstract

Pricing is a crucial decision for electronic fashion retailers. Motivated by various observed industrial practices in electronic retailing, we study in this paper the optimal Internet pricing schemes which employ price testing with Bayesian information updating following the Bernoulli process. This paper contributes to the literature and advancement of knowledge in a number of ways: (i) we propose an analytical model to study the Internet pricing problem with price-testing and Bayesian information updating for fashion retailers. (ii) We derive the closed-form expressions of the expected value of sampling information (EVSI) and the expected value of perfect information (EVPI) under the price testing scheme. (iii) We conduct the pre-posterior analysis and construct the optimal sampling plan with three different rules. (iv) We develop the optimal posterior pricing policies, with respect to the mean-risk and Value-at-Risk (VaR) objectives. Numerical analyses, which include the studies on EVPI and the efficient frontiers, are presented to generate more insights.

Suggested Citation

  • Choi, Tsan-Ming & Chow, Pui-Sze & Xiao, Tiaojun, 2012. "Electronic price-testing scheme for fashion retailing with information updating," International Journal of Production Economics, Elsevier, vol. 140(1), pages 396-406.
    • Handle: RePEc:eee:proeco:v:140:y:2012:i:1:p:396-406
    DOI: 10.1016/j.ijpe.2012.06.021
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    References listed on IDEAS

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    3. Ibrahim, Michael Nawar & Atiya, Amir F., 2016. "Analytical solutions to the dynamic pricing problem for time-normalized revenue," European Journal of Operational Research, Elsevier, vol. 254(2), pages 632-643.
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    6. Hajji, Adnène & Pellerin, Robert & Gharbi, Ali & Léger, Pierre Majorique & Babin, Gilbert, 2016. "Toward valuable prediction of ERP diffusion in North American automotive industry: A simulation based approach," International Journal of Production Economics, Elsevier, vol. 175(C), pages 61-70.
    7. Niu, Baozhuang & Chen, Lei & Zhuo, Xiaopo & Yue, Xiaohang, 2018. "Does buy-back induce more fashion sub-sourcing? Contract property and performance analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 113(C), pages 22-37.
    8. Zhou, Haijie & Chen, Kebing & Wang, Shengbin, 2023. "Two-period pricing and inventory decisions of perishable products with partial lost sales," European Journal of Operational Research, Elsevier, vol. 310(2), pages 611-626.
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