Joint Pricing and Control forAdditive Demand Models With Reference Effects

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Güler M. G., Bilgiç T., Güllü A. R.

4th P&OM World Conference, Amsterdam, Netherlands, 2 - 04 July 2012, pp.150-162

  • Publication Type: Conference Paper / Full Text
  • City: Amsterdam
  • Country: Netherlands
  • Page Numbers: pp.150-162
  • Yıldız Technical University Affiliated: No


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.