Consumer's Optimal Decision of Purchasing the Durable Electronic Goods

Abstract

With a new durable good appearing, the price of old type tends to decrease and the performance of the new type tends to be improved. Thus consumers with purchasing desire have two choices of buying a new one or the old one. A discrete time Markov decision process model is presented first with the consumer reserve prices to different durable generations as states, whose objective is to maximize consumer's purchasing value. Then several assumptions and modifications of the MDP model are given. Purchasing value reward in a stage includes durables' physical value and perceived value by introducing a new concept of perceived coefficient. The higher the reserve price, the more probable the consumer purchases the product in a higher price. Optimal purchasing points exist in a special case with two generations attracting the consumer in one stage, and optimal purchasing decisions vary with the consumers' preference, which are shown with a numerical example.