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Coordinating pricing and inventory decisions under reference price effects

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  • Timothy L. Urban

Abstract

A well-known concept in the marketing literature is that consumers use prices paid in the past or the current market price as a reference point to assess the value of the current price of an item. These 'reference prices' have been shown to have a significant impact on a consumer's purchase decision and a resulting influence on the selling firm's demand of the item. Recently, considerable research has been conducted on coordinated pricing and inventory decisions; however, very little has recognised the existence of reference prices. Thus, a single-period model is developed that incorporates the effects of reference prices, demand uncertainty and price elasticity on the solution. Numeric analysis indicates that accounting for reference prices can have a substantial impact on the pricing and inventory decisions and the resultant profitability, made by a firm.

Suggested Citation

  • Timothy L. Urban, 2008. "Coordinating pricing and inventory decisions under reference price effects," International Journal of Manufacturing Technology and Management, Inderscience Enterprises Ltd, vol. 13(1), pages 78-94.
    • Handle: RePEc:ids:ijmtma:v:13:y:2008:i:1:p:78-94
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    Citations

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    Cited by:

    1. Alfred Taudes & Christian Rudloff, 2012. "Integrating inventory control and a price change in the presence of reference price effects: a two-period model," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 75(1), pages 29-65, February.
    2. Dye, Chung-Yuan & Yang, Chih-Te, 2016. "Optimal dynamic pricing and preservation technology investment for deteriorating products with reference price effects," Omega, Elsevier, vol. 62(C), pages 52-67.
    3. Wang, Qiang & Zhao, Nenggui & Wu, Jie & Zhu, Qingyuan, 2021. "Optimal pricing and inventory policies with reference price effect and loss-Averse customers," Omega, Elsevier, vol. 99(C).
    4. Lin, Zhibing, 2016. "Price promotion with reference price effects in supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 85(C), pages 52-68.
    5. Xin Chen & Peng Hu & Stephen Shum & Yuhan Zhang, 2016. "Dynamic Stochastic Inventory Management with Reference Price Effects," Operations Research, INFORMS, vol. 64(6), pages 1529-1536, December.

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