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Dynamic pricing in the presence of consumer inertia

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  • Zhao, Li
  • Tian, Peng
  • Xiangyong Li
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    Abstract

    Customer behavior modeling has gained increasing attention in the context of dynamic pricing. As an important behavior phenomenon, consumer inertia refers to consumers' inherent tendency of purchase procrastination and may induce consumers to wait even when immediate purchase is optimal from an objective perspective. This paper studies a dynamic pricing problem for a monopolist firm selling perishable goods to consumers who may be influenced by inertia. We formulate this problem using the finite-horizon dynamic programming approach and derive the optimal dynamic pricing policy. We demonstrate that consumer inertia produces negative effects on firms' expected revenues and optimal prices, which are monotonically decreasing in both inertia depth and breadth. Through numerical illustrations, we further show that the marginal effects of inertia depth on optimal prices and expected revenues are decreasing, whereas the marginal effects of inertia breadth are increasing. Finally we propose some suggestions for firms to influence the level of consumer inertia.

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    Bibliographic Info

    Article provided by Elsevier in its journal Omega.

    Volume (Year): 40 (2012)
    Issue (Month): 2 (April)
    Pages: 137-148

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    Handle: RePEc:eee:jomega:v:40:y:2012:i:2:p:137-148

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    Related research

    Keywords: Dynamic pricing Customer behavior Consumer inertia Dynamic programming Multinomial logit model;

    References

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    Cited by:
    1. Zhang, Juan & Gou, Qinglong & Liang, Liang & Huang, Zhimin, 2013. "Supply chain coordination through cooperative advertising with reference price effect," Omega, Elsevier, vol. 41(2), pages 345-353.
    2. Rana, Rupal & Oliveira, Fernando S., 2014. "Real-time dynamic pricing in a non-stationary environment using model-free reinforcement learning," Omega, Elsevier, vol. 47(C), pages 116-126.

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