Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/146403
Authors: 
Chenavaz, Régis
Year of Publication: 
2016
Citation: 
[Journal:] Economics: The Open-Access, Open-Assessment E-Journal [Volume:] 10 [Issue:] 2016-22 [Pages:] 1-17
Abstract: 
A firm that accounts for consumer behavior sets the selling price of a product considering the reference price of consumers. In the literature, a reference price is usually modeled as depending on past selling prices. That is, past selling prices implicitly constrain the current selling price of a product. In this article, the author explicitly measures this constraint with an optimal control framework. He works on the structural properties of a general demand function, which depends on both selling and reference prices. Analytical results prove the following claims. Adjusting reference prices effects increase the price elasticity of demand, the demand function becoming flatter. Thus, the reference price effect weakens the market power of the firm. Also, the reference price effect constitutes a main driver of the dynamics of the selling price. But contrary to intuition, selling price dynamics does not systematically imitate reference price dynamics.
Subjects: 
dynamic pricing
behavioral pricing
reference price dependence
optimal control
JEL: 
C61
M21
D03
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article

Files in This Item:
File
Size
242.51 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.