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Optimal dynamic pricing for deteriorating items with reference-price effects

Author

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  • Musen Xue
  • Wansheng Tang
  • Jianxiong Zhang

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.

Suggested Citation

  • Musen Xue & Wansheng Tang & Jianxiong Zhang, 2016. "Optimal dynamic pricing for deteriorating items with reference-price effects," International Journal of Systems Science, Taylor & Francis Journals, vol. 47(9), pages 2022-2031, July.
    • Handle: RePEc:taf:tsysxx:v:47:y:2016:i:9:p:2022-2031
    DOI: 10.1080/00207721.2014.970598
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    Cited by:

    1. Chenavaz, Régis, 2016. "Dynamic pricing with reference price dependence," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 10, pages 1-17.
    2. Chenavaz Régis, 2017. "Better Product Quality May Lead to Lower Product Price," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 17(1), pages 1-22, January.
    3. Guang Yang & Ying Wang & Mulin Liu, 2023. "Optimal Policy for Probabilistic Selling with Three-Way Revenue Sharing Contract under the Perspective of Sustainable Supply Chain," Sustainability, MDPI, vol. 15(4), pages 1-22, February.
    4. Chenavaz, Régis Y. & Leocata, Marta & Ogonowska, Malgorzata & Torre, Dominique, 2022. "Sustainable tourism," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    5. Chenavaz, Régis & Paraschiv, Corina, 2018. "Dynamic pricing for inventories with reference price effects," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-16.
    6. Mrudul Y. Jani & Manish R. Betheja & Amrita Bhadoriya & Urmila Chaudhari & Mohamed Abbas & Malak S. Alqahtani, 2022. "Optimal Pricing Policies with an Allowable Discount for Perishable Items under Time-Dependent Sales Price and Trade Credit," Mathematics, MDPI, vol. 10(11), pages 1-19, June.
    7. Armando Meza & Paolo Latorre & Milena Bonacic & Héctor López-Ospina & Juan Pérez, 2024. "Optimizing Inventory and Pricing for Substitute Products with Soft Supply Constraints," Mathematics, MDPI, vol. 12(11), pages 1-23, June.
    8. Anton, Ramona & Chenavaz, Régis Y. & Paraschiv, Corina, 2023. "Dynamic pricing, reference price, and price-quality relationship," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    9. Saha, Subrata & Chatterjee, Debajyoti & Sarkar, Biswajit, 2021. "The ramification of dynamic investment on the promotion and preservation technology for inventory management through a modified flower pollination algorithm," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    10. Bing Wang & Wenjie Bi & Haiying Liu, 2023. "Dynamic Pricing with Parametric Demand Learning and Reference-Price Effects," Mathematics, MDPI, vol. 11(10), pages 1-14, May.
    11. Sadia Samar Ali & Haripriya Barman & Rajbir Kaur & Hana Tomaskova & Sankar Kumar Roy, 2021. "Multi-Product Multi Echelon Measurements of Perishable Supply Chain: Fuzzy Non-Linear Programming Approach," Mathematics, MDPI, vol. 9(17), pages 1-27, August.

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