Dynamic Monopoly Pricing Under the Reference Price Effect
Journal Title: Проблеми економіки - Year 2015, Vol 2015, Issue 1
Abstract
One of the important aspects of the theory and practice of firms is development of an optimal dynamic pricing strategy. Traditional marketing models consider the consumer as a rational agent who makes decisions based on current prices. However, in the dynamics, with repeated purchases, consumers form price expectations or reference prices which are compared with current prices. This effect is known as "the reference price effect". The work focuses on the dynamic monopoly pricing in the presence of the reference price effect. To study this question, the author constructed a model of the monopoly selling the product over T periods. The study considers a case when the reference prices are formed on the basis of prices from the previous period. In this case, buyers’ purchase decisions also rely upon the ratio of the current and previous prices. In the long run, the monopoly can have various efficiency criteria. The article considers two efficiency criteria: the maximum profit within each period of time and the maximum profit for the whole time. The study allowed finding discrete and equilibrium solutions. A comparative analysis of profits of the monopoly by two criteria resulted in the following conclusions. In comparison with the situation of the absence of the reference effect, optimization by the global criterion increases profits and that by the local criterion reduces them. Obtained results show that in case of optimization by the global criterion the reference effect dwindles in the long run.
Authors and Affiliations
Serhij Melnikov
Keywords
Related Articles
- EP ID EP105900
- DOI -
- Views 88
- Downloads 0
Principles of functioning of the transmission mechanism of the monetary system in international business
Modern international economic relations are characterised with reduction of rates of economic growth of the majority of developed economic systems, gradual oligopolisation of international markets, domination of private...
Simulation of Demand for Health Services Depending on the Age of the Population
For a realistic estimation of the possibility of increasing health care costs must be calculated the resource requirements for the provision of medical care in the volumes of relevant standards and projected number of di...
Problems of Development of Tourist Industry in Ukraine
In article the condition of world tourism is analyzed and the place of Ukraine in the world market of tourist services is defined. The basic problems of functioning of sphere of tourist business in Ukraine are considered...
Problems of periodisation of transformation of financial behaviour of households in the market of financial services of Ukraine
The goal of this article is justification of transformation of financial behaviour of households within the proposed periodisation of formation and development of the economic system and financial markets of Ukraine. The...
Possibility of Progressive Dynamics of Ukraine on the Basis of Structural Changes of the National Economy
Scientific and practical studies related to the determination of conditions for sustainable economic development of Ukraine, are extremely relevant. In the context of political and economic destabilization of direct vect...