4th P&OM World Conference, Amsterdam, Netherlands, 2 - 04 July 2012, pp.150-162
We study a periodic review joint inventory and pricing problem of a single item with stochastic
demand subject to reference effects. Randomness is introduced with an additive random term.
The customers have different attitudes such as loss-aversion, loss-neutrality or loss-seeking. We
show that the problem can be decomposed into two subproblems and characterize the steady
state solution for the infinite horizon problem. Defining the modified revenue as revenue less
production cost, we show that a state-dependent order-up-to policy is optimal for concave demand
models with concave modified revenue functions and provide example demand models
where customers are loss-neutral or loss-averse.