Dynamic Pricing with Considering Customers Negotiation and Reference Price Effect

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Meskar, Mahla | 2016

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 48157 (01)
University: Sharif University of Technology
Department: Industrial Engineering
Advisor(s): Modarres Yazdi, Mohammad
Abstract:
This thesis studies optimal pricing policy of a firm selling perishable products in a retail store facing stochastic arrival of customers whom may ask for a bargain. With the tremendous growth of the internet and online sale channels, the ability of customers to get detailed information about previous sales creates an expectation for reasonable price of product in customers' opinion called reference price which has great impacts on their willingness to pay. In this work, we address the problem of determining a pricing strategy considering reference price effects in addition to customers' negotiation ability. We use dynamic programming to model retailer's problem, which considering reference price effect makes it much more complicated. We investigate structural properties of retailer's value function and we then develop approximate solution to calculate the optimal prices for this model. A numerical study is also provided to calculate the performance and results of proposed solution. Finally we extend the model to a more realistic framework with periodic pricing reviews
Keywords:
Revenue Management ; Dynamic Pricing ; Reference Price ; Dynamic Programming ; Modeling ; Negotiation Tactics

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