The Optimal Control Policy of Dynamic Pricing with Reference Effect

DOI

10.2991/tmcm-15.2015.34How to use a DOI?

Keywords

optimal control; pricing policy; reference effect; simulation

Abstract

This paper focuses on dynamic pricing decision with a static reference price in revenue management situations. Firstly, it constructs the optimal control model with continuous time and continuous prices. Secondly, it defines the concept of multiplicative reference effect, and describes the characteristics of the reference effect and the demand function with multiplicative reference effect. By solving the Hamilton-Jacobi equation, it presents the optimal price path. Finally, it compares the pricing strategies with the GVR model without reference effect under different circumstances through simulation experiments. The results show that the stronger the reference effect is, the more it influences the optimal price and total revenue. The optimal price and revenue increase with the reference price. The markup policy is effective in high demand situations and the markdown policy is effective in low demand situations. In the situations with low demand and strong reference effect, one should adopt demand-oriented strategies. In other situations, one should adopt price-oriented strategies.

Copyright

© 2015, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Hui Yang
AU  - Hui Jin
PY  - 2015/11
DA  - 2015/11
TI  - The Optimal Control Policy of Dynamic Pricing with Reference Effect
BT  - Proceedings of the 2015 International Conference on Test, Measurement and Computational Methods
PB  - Atlantis Press
SP  - 137
EP  - 140
SN  - 2352-538X
UR  - https://doi.org/10.2991/tmcm-15.2015.34
DO  - 10.2991/tmcm-15.2015.34
ID  - Yang2015/11
ER  -