Stochastic Dynamic Pricing with Strategic Customers and Reference Price Effects

Rainer Schlosser

2019

Abstract

In many markets, customers strategically time their purchase by anticipating future prices and by checking offer prices multiple times. Typically, customers base their decisions on historical reference prices and their individual willingness-to-pay, which can change over time. For sellers it is challenging to derive successful pricing strategies as customers’ reservation prices cannot be observed. In this paper, we present a stochastic dynamic finite horizon framework to determine optimized price adjustments for selling perishable goods in the presence of strategic customers, which (i) recur and (ii) anticipate future prices based on reference prices. We analyze the impact of different strategic behaviors on expected profits and the evolution of sales. Compared to myopic settings, we find that recurring customers lead to higher average prices, delayed sales, and increased profits. The presence of forward-looking customers has opposing but less intense effects.

Paper Citation

in Harvard Style

Schlosser R. (2019). Stochastic Dynamic Pricing with Strategic Customers and Reference Price Effects.In Proceedings of the 8th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES, ISBN 978-989-758-352-0, pages 179-188. DOI: 10.5220/0007519401790188

in Bibtex Style

@conference{icores19,
author={Rainer Schlosser},
title={Stochastic Dynamic Pricing with Strategic Customers and Reference Price Effects},
booktitle={Proceedings of the 8th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,},
year={2019},
pages={179-188},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0007519401790188},
isbn={978-989-758-352-0},
}

in EndNote Style

TY - CONF

JO - Proceedings of the 8th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,
TI - Stochastic Dynamic Pricing with Strategic Customers and Reference Price Effects
SN - 978-989-758-352-0
AU - Schlosser R.
PY - 2019
SP - 179
EP - 188
DO - 10.5220/0007519401790188