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Dynamic pricing with reference price dependence

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  • Chenavaz, Régis

Abstract

A firm usually sets the selling price of a product by taking into account consumers' reference price. A behavioral pricing scheme integrating reference effects would suggest that the higher the reference price, the higher the firm can set the price. In this paper, the author investigates this intuition by accounting for reference dependence in an optimal control framework. Results show that the dynamics of price originates from the sensitivity of customers to reference price. Contrary to intuition, price dynamics is not systematically associated to the evolution of the reference price, but derives from competing effects related to the dynamics of the reference price.

Suggested Citation

  • Chenavaz, Régis, 2016. "Dynamic pricing with reference price dependence," Economics Discussion Papers 2016-20, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:201620
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    References listed on IDEAS

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    2. Zhang, Jie & Kevin Chiang, Wei–yu & Liang, Liang, 2014. "Strategic pricing with reference effects in a competitive supply chain," Omega, Elsevier, vol. 44(C), pages 126-135.
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    7. 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.
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    Cited by:

    1. 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.
    2. 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).
    3. Salgado Alfredo, 2022. "Regulation through Reference Prices," Working Papers 2022-05, Banco de México.
    4. Turunç Ömer & Karayalçın Cem, 2024. "Bridging Brand Parity with Insights Regarding Consumer Behavior," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 18(1), pages 1-10, January.
    5. 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.

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    More about this item

    Keywords

    dynamic pricing; behavioral pricing; reference dependence; optimal control;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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