ISSN:
1573-059X
Keywords:
pricing
;
references prices
;
consumer expectations
;
promotions
;
product quality
;
dynamic optimization
;
optimal control theory
Source:
Springer Online Journal Archives 1860-2000
Topics:
Economics
Notes:
Abstract A number of recent papers have developed normative implications of the concept of reference price. In this paper, we extend that literature to incorporate the relationship between expected quality and reference price. We consider the case of a monopolist who makes time-varying decisions regarding price and product quality. Our results suggest that when the effect of a loss (price greater than reference price and product quality less than expected quality) on demand is greater than or equal to that of a corresponding gain, it is optimal for a monopolist to have constant price and product quality levels. When the effect of a gain on demand is greater than that of a corresponding loss, however, we find that it is optimal to maintain cyclical pricing and product quality policies.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1007/BF00557310
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