Joint Pricing and Inventory Decision Considering the Reference Price Effect Based on Advance Selling

Abstract

Consumers not only react sensitively to the current price, but also to the reference price. Thus, the losses caused by the reference price effect in the regular period must be taken into account when considering the effects of discount advance selling on profits. Aiming at the problem of pricing and inventory decision considering the consumer’s reference price effect under part prepayment advance selling, this paper developed a profit function of retailers based on the theory of strategic consumer utility, newsboy model and transaction utility theory, to study the optimal prepayment, pre-sale price and the optimal order quantity under the uncertainty of the total demand and the consumer valuation. The research of the model shows that after considering the consumer’s reference price effect, the retailer’s optimal pre-sale price increases and the optimal order quantity decreases. Under the condition of certain pre-sale price, the more sensitive the consumer is to the reference price, the smaller the retailer’s optimal prepayment is. In addition, the effects of the reference price effect on the pre-sale price, the optimal order quantity and the profit are analyzed by the numerical simulation.