Integrated Pricing And Inventory Control With Reference Price Effects
In this paper the authors study a joint pricing and inventory control model with backlogging for single items under reference price effects. The reference price effect models the empirically well established fact that consumers not only react sensitively to the current price, but also to deviations from a reference price formed on the basis of past purchases. The current price is then perceived as a discount or surcharge relative to this reference price. Thus, immediate effects of price reductions on pro t have to be weighted against the resulting losses in future periods.