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Dynamic pricing for inventories with reference price effects

Author

Listed:
  • Régis Chenavaz

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, KEDGE Business School [Marseille])

  • Corina Paraschiv

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article presents a dynamic pricing model of a retailer selling an inventory, accounting for consumer behavior. The authors propose an optimal control model, maximizing the intertemporal profit with consumers sensitive to the selling price and to a reference price. The optimal dynamic pricing policy is solved with Pontryagin's maximum principle with a structural (general) demand function. The authors obtain an original pricing rule, which explicitly accounts for the impact of price and inventory on future profits. The dynamics of price do not have to imitate the dynamics of the reference price. Instead, the dynamics of price are tied to opposing effects linked to this reference price. The authors also discuss managerial implications with regards to behavioral pricing policies.

Suggested Citation

  • Régis Chenavaz & Corina Paraschiv, 2018. "Dynamic pricing for inventories with reference price effects," Post-Print hal-01985853, HAL.
    • Handle: RePEc:hal:journl:hal-01985853
    DOI: 10.5018/economics-ejournal.ja.2018-64
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    Cited by:

    1. Chenavaz, Régis Y. & Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M., 2020. "Modeling the impact of product quality on dynamic pricing and advertising policies," European Journal of Operational Research, Elsevier, vol. 284(3), pages 990-1001.
    2. Bertrand Crettez & Naila Hayek & Georges Zaccour, 2020. "Existence and characterization of optimal dynamic pricing strategies with reference-price effects," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 28(2), pages 441-459, June.
    3. Régis Chenavaz & Corina Paraschiv & Gabriel Turinici, 2021. "Dynamic Pricing of New Products in Competitive Markets: A Mean-Field Game Approach," Dynamic Games and Applications, Springer, vol. 11(3), pages 463-490, September.
    4. R. Schlosser & K. Richly, 2019. "Dynamic pricing under competition with data-driven price anticipations and endogenous reference price effects," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 18(6), pages 451-464, December.
    5. Corina Paraschiv & Nawel Ayadi, 2025. "Ethicality of online dynamic pricing: an empirical investigation of consumer perception of ethical risks," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 24(3), pages 285-299, June.
    6. Florian Steinbrenner & Jana Turčínková, 2021. "The Value-Based Pricing Determination Matrix for Pricing Method Selection," Central European Business Review, Prague University of Economics and Business, vol. 2021(4), pages 99-123.
    7. 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).

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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