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Pricing and inventory policies under price-tracking behaviour

Author

Listed:
  • Leo MacDonald
  • Chris K. Anderson
  • Henning Rasmussen

Abstract

We develop a demand rate model for the optimisation of retail sales of perishable assets when consumers track prices over the sales horizon. We model this behaviour within an aggregate demand framework, solving the initial joint inventory and pricing problem when the demand is deterministic as well as stochastic. We solve the problem numerically and discuss the specific results as well as the characteristics of the optimal price and inventory levels. We illustrate when firms are likely to choose a penetration vs. skimming pricing policy and describe solution updating procedure as actual sales occur.

Suggested Citation

  • Leo MacDonald & Chris K. Anderson & Henning Rasmussen, 2010. "Pricing and inventory policies under price-tracking behaviour," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 4(1), pages 1-21.
    • Handle: RePEc:ids:ijrevm:v:4:y:2010:i:1:p:1-21
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