Proceedings of the 2015 International Conference on Test, Measurement and Computational Methods

The Optimal Control Policy of Dynamic Pricing with Reference Effect

Authors
Hui Yang, Hui Jin
Corresponding Author
Hui Yang
Available Online November 2015.
DOI
https://doi.org/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.
Open Access
This is an open access article distributed under the CC BY-NC license.

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Proceedings
2015 International Conference on Test, Measurement and Computational Methods
Part of series
Advances in Computer Science Research
Publication Date
November 2015
ISBN
978-94-6252-132-2
ISSN
2352-538X
DOI
https://doi.org/10.2991/tmcm-15.2015.34How to use a DOI?
Open Access
This is an open access article distributed under the CC BY-NC license.

Cite this article

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  - 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  - https://doi.org/10.2991/tmcm-15.2015.34
ID  - Yang2015/11
ER  -