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Pricing Strategies for Competing Adaptive Retailers Facing Complex Consumer Behavior: Agent-based Model

Author

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  • Heng Du

    (Center for Behavioral Decision and Control, School of Management and Engineering, Nanjing University, Nanjing 210093, China)

  • Tiaojun Xiao

    (Center for Behavioral Decision and Control, School of Management and Engineering, Nanjing University, Nanjing 210093, China)

Abstract

This paper examines pricing strategies for two adaptive retailers competing on two products in the presence of complex consumer behavior, where consumers own heterogeneous product and store valuations and the number of potential consumers is random. Each retailer can choose one from two pricing strategies: the uniform pricing format (offering the same price for two products) or the differentiated pricing format (offering different prices). Utilizing agent-based model (each retailer is modeled as an autonomous agent with the reinforcement learning behavior), we find that: (i) the differentiated pricing format is not always the optimal choice; (ii) when the uncertainty of one product/store valuation is a little larger than that of the rival, both retailers should adopt uniform pricing. Besides, when wholesale price contract is endogenous, we find that supplier’s pricing behavior can change the impact of the fixed cost on the pricing strategy.

Suggested Citation

  • Heng Du & Tiaojun Xiao, 2019. "Pricing Strategies for Competing Adaptive Retailers Facing Complex Consumer Behavior: Agent-based Model," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 18(06), pages 1909-1939, November.
    • Handle: RePEc:wsi:ijitdm:v:18:y:2019:i:06:n:s021962201950038x
    DOI: 10.1142/S021962201950038X
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    2. Du, Heng & Lu, Ke, 2023. "Visualization service investment strategies for a self-operated fresh agricultural product e-tailer," Journal of Retailing and Consumer Services, Elsevier, vol. 75(C).

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