Name
Title | ||
|---|---|---|
Explicit Solutions of Optimization Models and Differential Games with Nonsmooth (Asymmetric) Reference-Price Effects |
Abstract | ||
|---|---|---|
Models in marketing with asymmetric reference effects lead to nonsmooth optimization problems and differential games which cannot be solved using standard methods. In this study, we introduce a new method for calculating explicitly optimal strategies, open-loop equilibria, and closed-loop equilibria of such nonsmooth problems. Application of this method to the case of asymmetric reference-price effects with loss-aversive consumers leads to the following conclusions: (1) When the planning horizon is infinite, after an introductory stage the optimal price stabilizes at a steady-state price, which is slightly below the optimal price in the absence of reference-price effects. (2) The optimal strategy is the same as in the symmetric case, but with the loss parameter determined by the initial reference-price. (3) Competition does not change the qualitative behavior of the optimal strategy. (4) Adopting an appropriate constant-price strategy results in a minute decline in profits. |
Year | DOI | Venue |
|---|---|---|
2003 | 10.1287/opre.51.5.721.16758 | Operations Research |
Keywords | Field | DocType |
reference-price effects,reference-price effect,asymmetric reference effect,optimal strategy,optimization models,nonsmooth problem,explicit solutions,asymmetric reference-price effect,steady-state price,initial reference-price,new method,differential games,optimal price,appropriate constant-price strategy result,steady state,optimal control,price stability,profitability,marketing | Reference price,Mathematical optimization,Mathematical economics,Optimal control,Time horizon,Optimization problem,Mathematics,Profit (economics) | Journal |
Volume | Issue | ISSN |
51 | 5 | 0030-364X |
Citations | PageRank | References |
42 | 2.95 | 0 |
Authors | ||
3 | ||
Name | Order | Citations | PageRank |
|---|---|---|---|
| Gadi Fibich | 1 | 216 | 45.40 |
| Arieh Gavious | 2 | 117 | 18.66 |
| Oded Lowengart | 3 | 68 | 5.79 |