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Dynamic zigzag pricing of resalable goods with no depreciation and intergroup externalities

Author

Listed:
  • K Kogan

    (Bar-Ilan University)

  • U Spiegel

    (Bar-Ilan University
    University of Pennsylvania)

Abstract

This paper addresses the pricing policy of durable value goods that do not depreciate over time. This implies that demands for this type of goods fluctuate with respect to their market price and social interactions between customers rather than with respect to the time elapsed since they have been produced or created. We suggest an analytical approach for optimally setting durable value product prices with respect to the interdependency between two customer groups characterized by asymmetric intergroup externalities. We demonstrate that cyclic pricing policies of harmonic form become optimal when the company is prepared to compromise its short-run net profit to ensure its lasting reputation. Furthermore, we show that the greater the difference between the product of the price and the externality effect of the two customer groups, the greater the frequency of the harmonic fluctuation.

Suggested Citation

  • K Kogan & U Spiegel, 2006. "Dynamic zigzag pricing of resalable goods with no depreciation and intergroup externalities," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 57(11), pages 1353-1365, November.
    • Handle: RePEc:pal:jorsoc:v:57:y:2006:i:11:d:10.1057_palgrave.jors.2602130
    DOI: 10.1057/palgrave.jors.2602130
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    References listed on IDEAS

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