Title: Coordinating pricing and inventory decisions under reference price effects

Authors: Timothy L. Urban

Addresses: Operations Management, The University of Tulsa, Tulsa, OK 74104-3189, USA

Abstract: A well-known concept in the marketing literature is that consumers use prices paid in the past or the current market price as a reference point to assess the value of the current price of an item. These |reference prices| have been shown to have a significant impact on a consumer|s purchase decision and a resulting influence on the selling firm|s demand of the item. Recently, considerable research has been conducted on coordinated pricing and inventory decisions; however, very little has recognised the existence of reference prices. Thus, a single-period model is developed that incorporates the effects of reference prices, demand uncertainty and price elasticity on the solution. Numeric analysis indicates that accounting for reference prices can have a substantial impact on the pricing and inventory decisions and the resultant profitability, made by a firm.

Keywords: manufacturing-marketing interface; single-period model; reference price effects; pricing decisions; inventory decisions; marketing; manufacturing; coordination; profitability.

DOI: 10.1504/IJMTM.2008.015975

International Journal of Manufacturing Technology and Management, 2008 Vol.13 No.1, pp.78 - 94

Published online: 02 Dec 2007 *

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