Consumer Utility Function Research Articles

Stochastic optimal control problem of consumption and pension insurance with uncertain lifetime and its application to real-life data

We consider a continuous-time model of optimal consumption and pension insurance for a consumer with an uncertain lifetime. In the model, the consumer earns a stochastic wage income during her working life and optimally allocates her income between personal consumption, pension insurance, and securities with a deterministic dynamic return. Due to the weak development of the stock market in developing countries, employees' income comes mainly from wages and interest on savings from banks, that are discussed in this paper. The consumer's utility and bequest functions are constant absolute risk aversion (CARA). By characterizing the optimality condition of the consumer's problem using the Hamilton-Jacobi-Bellman equation, we find the optimal consumption and pension insurance as a function of wealth in closed form. We consider an application of the model while estimating its key elements using real-life data on age-specific population size, labor income, and interest rates. We show that as the absolute risk aversion for consumption increases, consumption and wealth move in the opposite direction. We also present a novel finding that wealth and consumption can be negatively related across consumers with different levels of consumption risk aversion.

The transformation mechanism of fitness clubs: Pricing of joint fitness courses by online platforms and well-known coaches

As a consequence of the lockdown and quarantine measures during the COVID-19 pandemic, consumers engaged in home fitness by purchasing fitness courses online. Therefore, after the pandemic, the platform model has become a trend for transformation among fitness clubs to resist risks of uncertainty and expand the market for course sales. The cooperation between well-known coaches and online fitness platforms to achieve optimal pricing has gained attention in the process of transformation of fitness clubs from offline to online platforms. The platform model of fitness clubs can help online fitness platforms expand the dissemination of well-known coaches' courses and enhance the spillover effect of course popularity. We construct pricing decision models for both clubs and coaches by characterizing the consumer utility function of well-known coaches and online fitness platforms, the demand function for fitness courses in the market, and the revenue functions for clubs and coaches. We use the Shanghai Zhongtian Fitness Club in China as a case study to analyze pricing decision solutions and perform numerical experiments and sensitivity analyses on online course sales data obtained during the lockdown periods. The study found that the optimal prices for well-known coaches' courses and online fitness platforms increase with market size, indicating their ability to increase fitness course prices among potential consumers. Further, the profit level increases with market size, indicating that market expansion brings in more potential consumers and the profits gained by well-known coaches’ courses and online fitness platforms from potential consumers exceed the profits lost due to price increases; this results in an overall increase in profit level. We further conclude that online fitness platforms can use the platform pricing model of fitness clubs to transform and upgrade.

The impact of product diversity and distribution networks on consumption expansion

Investigation on the influencing factors of consumption expansion is an important subject in business research. This study constructs a consumption utility function and analyzes the relationship between search cost and product heterogeneity and equilibrium price. Employing the data on 31 regions in China from 2002 to 2020, the panel data model is used to verify the results of the theoretical analysis. We draw the following conclusions. (1) Expanding the number of distribution outlets will lead to a decline in the equilibrium price, and an increase in product diversity prompts consumers to conduct more searches. (2) Expanding distribution networks can increase residents’ total consumption and consumption level. (3) An increase in product diversity can expand resident consumption. The conclusions suggest that distributors and retailers can increase the categories of their products, provide consumers with diversified decision-making space, and stimulate consumption expansion.

The Resource Potential and Optimization of Rural Housing Land under Utility Structure Evaluation in Metropolitan Suburbs Villages of China

Reasonable resource potential calculation is the basic premise for the country to formulate planning and carry out rural housing land consolidation, which can deepen the research on the economical and intensive use of rural construction land. This paper evaluates farmers’ area demands of rural housing land by using the consumption utility function, analyzes the spatial pattern characteristics of demand and potential, and puts forward suggestions for the resource optimization of rural housing land based on the survey data of 613 farmers and land use data in the Pinggu District of Beijing in 2005 and 2018. Research shows that the utilities of life, production, and the ecological are carried and measured by the corresponding internal land-use structure of rural housing land. The proportion of life land area was the largest, and the life and production land area decreased from plain to mountain, from 119.76 m2 to 89.07 m2 and from 44.87 m2 to 32.85 m2, respectively. The average area potential is 395.64 m2 and the change range is −30.35–1413.75 m2, which is basically in accordance with the normal distribution. The area potential can be divided into five grades, which are expressed by I, II, III, IV, and V in order of potential from small to large by using the natural fracture method. The utility needed should be enhanced and expanded, and the redundant utility should be removed and socialized in the village. The resource optimization and allocation of rural housing land should be promoted according to the idea of regionalization and classification. It provides scientific support for the reform of rural housing land.

Decision on Mixed Trading between Medium- and Long-Term Markets and Spot Markets for Electricity Sales Companies under New Electricity Reform Policies

The introduction of the new round of electricity reform policies has made the electricity sales companies’ trading environment increasingly complex. In the medium- and long-term market and spot market, following the new policy-oriented optimization of trading decisions is the focus of electricity sales companies. The main objective of this study is to consider the impact of the latest policies of China’s current electricity reform on each subject of electricity trading and to propose a method for electricity sales companies to make optimal decisions on renewable energy source (RES) power and conventional energy source (CES) power mixed with power trading in the medium- and long-term and spot markets to improve the efficiency of electricity market trading, promoting the consumption of renewable energy and helping the synergistic development of the electricity market and the tradable green certificate (TGC) market. This paper first discusses the impact of the new electricity reform policies on the transactions of various subjects in the electricity market and constructs the model of the consumer utility function, the profit model of an electricity sales company, and the profit model of power generators with energy storage. Considering the complex power supply and demand relationship among the various subjects of the electricity market, a game model is established for the decision on mixed trading between the medium- and long-term market, the spot market, and the tradable green certificate market to minimize the comprehensive power purchase cost of an electricity sales company. To reduce the decision-making risk caused by the uncertainty of spot price, the prophet model is used to predict the spot price; finally, through the analysis of the decision-making model of the electricity sales companies, the optimal transaction decisions of the electricity sales companies in different trading periods and different scenarios are solved. The test results show that the proposed model can significantly improve the profitability of the electricity sales companies and provide a decision-making reference for electricity sales companies to participate in the medium- and long-term market and spot market.

The Nonlinear Model of Intersectoral Linkages of Kazakhstan for Macroeconomic Decision-Making Processes in Sustainable Supply Chain Management

We provide a nonlinear model of intersectoral balance with constant elasticity of substitution (CES) production functions of industries and CES utility function of final consumer for the study of intersectoral linkages in the Kazakhstan economy. The model is formalized in terms of the primal problem of resource allocation and the corresponding Fenchel dual problem which solution gives costs of inputs of industries in a supply network. We identify the model with the actual data of the Input-Output tables of Kazakhstan and estimate the elasticity of substitution of production factors for the aggregated industry complexes. With the help of developed framework, we evaluate the inter-industry financial flows in the aggregated supply network for the period 2013–2020 and compare the results with the actual data of Kazakhstan. The developed framework can be used to support decision-making processes in sustainable supply chain management in a situation of the government economic policy change and external shocks. Using the developed framework, we evaluate the risks for Kazakhstan’s supply chains in scenario of sharp weakening of the national currency.

The impact of liquidity constraints and cashflows on the optimal retirement problem

In this work we analytically solve an optimal retirement problem, in which the agent optimally allocates consumption, leisure rate and invests in a risk-free and risky asset to maximize a gain function characterized by a power utility function of consumption and leisure, through the duality method. The model is general enough to be compatible with both lifetime debt repayments and pension plans. We impose different liquidity constraints and cashflows over different time spans and conduct a sensitivity analysis to discover the effect of this kind of constraint. We show that pre- and post-retirement constraints have opposite effects on optimal wealth threshold of retirement. Moreover, pre-retirement constraints do not impact on post-retirement control strategies, while the opposite does not hold true.

Research on pricing strategy of online education products considering consumers' matching degree and price comparison behavior

PurposeThe uncertainty of consumers' perceived value makes online education enterprises face great challenge in developing the pricing strategy. So the purpose of this paper is to research the pricing strategies of online education products by considering knowledge consumers' characteristics.Design/methodology/approachConsidering consumer matching degree and price comparison, this study establishes the utility functions of consumers in normal sales period and discount selling period. On this basis, the research builds pricing models of the online education enterprise under the strategy of price undertaking and intertemporal pricing strategy. It further discusses the impact of consumer matching degree, consumer price sensitivity and different types of consumers on the product price and profit of online education enterprises, and reveals the optimal pricing strategy of the enterprise.FindingsConsumer matching degree and price sensitivity coefficient have positive effects on product price and enterprise profit, but they have different effects on product demand; there are differences in the perceived value of the three types of consumers, and matching consumers are the optimal consumer group; the intertemporal pricing strategy is better than the strategy of price undertaking only when the price sensitivity coefficient is greater than a critical value.Originality/valueThis study enriches the literature on the pricing model of online education products and owns a practical significance to guide the online enterprise to make marketing strategies to increase profit.

Demand response strategy for TCLs considering consumer utility

With the higher share of renewable energy, the flexibility of the power system needs to be improved. In recent years, the loads on the demand side can provide flexibility with the development of demand response technology. Thermostatically controlled loads (TCLs), as a kind of large-scale flexible load, have been a significant demand response resource. In this paper, a demand response strategy for TCLs considering consumer utility function is proposed. Firstly, a utility function is modeled to estimate the utility of TCLs. Then a model for estimating the potential of TCLs is built. On this foundation, the power system operators (PSOs) sort TCLs by consumer utility. TCLs with lower consumer utility will be called first. The study case adopts realistic data of an eastern city in China, which verifies the effectiveness of the proposed strategy.

Modeling multi-criteria decision analysis in residential PV adoption

Multi-Criteria Decision Analysis (MCDA) is a sub-discipline of operations research that aims to solve multi-objective optimization problems by evaluating competing factors in decision-making. MCDA supports multidimensional decision-making processes through the analysis of diverse inputs at several levels of description, e.g. economic, technical, social, and environmental. The use of MCDA has been gaining momentum in the energy field, especially in endeavors that require evaluating the feasibility of different adoption scenarios for renewable energy technologies. The study presented in this paper investigates the combined use of multi-agent simulation, Bayesian modeling and sensitivity analysis for the development of a novel MCDA approach that supports the analysis of residential solar Photovoltaic (PV) adoption. The ensuing MCDA approach is evaluated alongside four popular MCDA methods (AHP, TOPSIS, SAW and ELECTREII) in a variety of tests aimed to assess overlap in criterion rankings and decision-making outcomes, covariation of criteria rankings in alternative scenarios, and the capacity to provide a model of correct decision-making. The comparative evaluation with AHP, TOPSIS, SAW and ELECTREII shows that overall ABM-BN-SA is well correlated with most of other MCDA methods and provides the best performing model of decision-making, with reference to the PV adoption use case under analysis. TOPSIS shows the closest fit with ABM-BN-SA, as expected since it used a ranking approach considerably closer to ABM-BN-SA as compared to the other MCDA treatments. ELECTREII yields the lowest degree of ranking overlap with ABM-BN-SA. All the reviewed methods have been illustrated and evaluated within our residential solar Photovoltaic (PV) adoption decision support system. In general, these methods enable a user to select an optimal solution out of a set of plausible alternatives according to multiple criteria and assist him in the design and exploration of the decision space. The ensuing decision-making methodology can be applied not only by Solar PV panel purchasers but also by stakeholders in other industries to logically and straightforwardly model and simulate the adoption decision-process of the public based on their individual preferences, behavioral rules, and interaction within a social network, with specific reference to a consumer utility function.

Estimation of product quality in China's food processing and manufacturing industries

Using a product variety model, where higher-quality products increase consumer utility and quality products are more costly to produce, we show that optimal product quality depends on a parameter of the consumer utility function and the firm's cost of production. Our theoretical analysis shows that a firm's unobserved product quality is structurally linked to its observed sales revenue; the structural relationship allows estimation of the product quality within an industry. We then utilize firm-level data from China from 2005 to 2007 to estimate product quality in China's (i) food processing and (ii) food manufacturing industries. By comparing the distributions of product quality (and product quality growth rates) over time, we argue that product quality in both industries is improving.

A purchase decision support model considering consumer personalization about aspirations and risk attitudes

Ranking alternative products to help consumers make better purchase choices is a valuable research topic. Most previous decision support models cannot be well applied to heterogeneous consumers. This paper focuses on establishing a personalized interactive model to assist consumers make better buying decisions with less effort. For the alternative products provided by consumers, we collect online reviews and parameter configurations of alternative products and then obtain the fusing evaluative information. As consumers are dominated by bounded rationality, they only provide partially key attribute weights, based on which, we construct an optimizing model to obtain the optimal attribute weights of customers for products. Then, a satisfaction function is proposed by uniting aspiration levels and risk attitudes of consumers and a compensatory decision rules is established to rank and recommend the brands to consumers. Finally, practicability of this study is illustrated with a real car purchase case. Through the case study, it can be seen that the proposed decision support model generates a personalized list of alternatives based on consumer's own utility function about risk attitudes, aspiration levels, and preferences for product attributes, which further confirms that the proposed model can capture the personalized needs of consumers. Theoretical and managerial implications of this model as well as advantages are further illustrated.

Who will want to use shared autonomous vehicle service and how much? A consumer experiment in South Korea

Autonomous driving technologies are expected to affect shared mobility; therefore, the discussions on new business models using shared autonomous vehicles (SAVs) and their feasibilities are underway. This study analyzes consumer preference and willingness to pay for an SAV service, focusing on the automation level of the shared vehicle and liability for an accident, to investigate who will use the SAV service and how much. For this, we conducted a conjoint survey with 1,000 South Koreans and estimated the consumer utility function for an SAV service using a multiple discrete–continuous extreme value (MDCEV) model. The results show that consumer utility increases when the SAV automation level is higher and the liability for an accident lies with the SAV service provider. Moreover, we find that potential consumers have different preferences regarding the liability of a car accident according to their sociodemographic characteristics. We also analyze choice probability and usage of SAV services according to autonomous driving technology levels and who is held liable for an accident. The results show that people with a higher income prefer to use SAV service if service providers are responsible for an accident. Contrarily, older people, drivers, and people with a low income prefer to use SAV service if the accident’s liability lies with the automobile manufacturer. We also find that SAV service usage increases when the level of autonomous driving technology is high or liability for an accident lies with the SAV service provider or automobile manufacturer.

Asset Pricing Based on Micro Consumption

This paper proposes an estimable asset pricing model that builds upon micro consumption and reference-dependent preference. Central to the model is an S-shaped consumption utility function that is convex below the reference point. The model quantitatively accounts for both low risk-free rates and high equity premiums. The S-shaped consumption utility works by rationalizing the micro-level finding that, for many people, consumption growth correlates negatively with asset returns. When global concavity is maintained, the equity premium puzzle remains because the estimated degree of relative risk aversion given a high consumption-reference ratio is absurdly large.

Calculation Method for Electricity Price and Rebate Level in Demand Response Programs

Demand response programs (DRs) can be implemented with less investment costs than those in power plants or facilities and enable us to control power demand. Therefore, they are highly expected as an efficient option for power supply–demand-balancing operations. On the other hand, DRs bring new difficulties on how to evaluate the cooperation of consumers and to decide electricity prices or rebate levels with reflecting its results. This paper presents a theoretical approach that calculates electricity prices and rebate levels in DRs based on the framework of social welfare maximization. In the authors’ proposal, the DR-originated changes in the utility functions of power suppliers and consumers are used to set a guide for DR requests. Moreover, optimal electricity prices and rebate levels are defined from the standpoint of minimal burden in DRs. Through numerical simulations and discussion on their results, the validity of the authors’ proposal is verified.

The optimal pricing model of online knowledge payment goods in C2C sharing economy

PurposeThe purpose of this paper is to research the price strategies of online knowledge payment product by considering network externality in the C2C sharing economy.Design/methodology/approachConsidering the characteristics of online knowledge goods and the social network externality of consumers, this study establishes a consumer utility function. On this basis, a multistage game pricing model of online knowledge products is established based on three kinds of network price strategies under a completely competitive market structure. It also analyzes the influence of consumer social network structure and consumer utility on online knowledge product pricing and producer profit, as well as the influence of consumer quantity and discount rate on pricing strategy.FindingsThe consumer social network and consumer utility affect the pricing of online knowledge product under different price strategies. In the growth period of the platform, adopting the price discrimination strategy, the profit of producers is significantly higher than that of other price strategies, and producers should choose effective price strategies for reasonable pricing in combination with their own sales objectives.Originality/valueThis study enriches the literature on the pricing model of online knowledge payment product and owns a practical significance to guide the knowledge producers’ marketing strategies to increase profit.

The dark side of bilateral encroachment within a supply chain

It is broadly agreed that the opportunity of encroachment is a viable strategy to increase profit. We consider a supply chain in which one manufacturer can encroach by selling national brand products to consumers directly, and one retailer can encroach by developing and selling store brand products. The national brand product is more valued by consumers, whereas the incumbent retailing channel is more cost-efficient. Linear inverse demand functions are derived from consumer utility functions. We assume that two firms move simultaneously and separately to choose their strategies. We then identify the conditions under which each firm should encroach. We find that the strategic channel control role of direct marketing is eliminated by the retailer’s opportunity of encroachment; hence, the manufacturer should not establish the direct channel unless direct sales actually occur. Contrary to conventional wisdom, the analytical results demonstrate that under certain conditions the opportunity of bilateral encroachment can form a prisoner’s dilemma between the manufacturer and the retailer, i.e. the Pareto optimal solution is not to encroach, but encroachment is the optimal strategy for both firms. In addition, we find that the prisoner’s dilemma could be avoided by allowing one firm to move first to choose its strategy.

International Trade with Social Comparisons

As consumers in countries around the world become increasingly aware of and sensitive to the products that their foreign counterparts consume, a natural question is what predictions do classic trade frameworks hold when incorporating social comparison-based preferences? We analyze this question in a general equilibrium framework for a two-country, two-good world, in which the gap between domestic and foreign consumption of a product can enter into the representative consumer's utility function. We consider nine exhaustive social comparison scenarios, which differ based upon the combination and origin of products that consumers of each country hold a social comparison over. We show that Home Comparison preference (social comparison over the home-produced good) unilaterally brings consumption and welfare bene fits to the home country, and global welfare is enhanced when both countries maintain such preferences. On the other hand, Foreign Envy (social comparison over the foreign-produced good) is disadvantageous to the home country, contributing negatively to welfare when the other country either prefers its own produced good or has no particular social preference. Mutual Foreign Envy however, tends to contribute positively to global welfare. Our analysis helps to explain the social welfare incentives of policy-makers in promoting cross-country comparisons of domestic goods among their own consumers, while advocating domestically-produced goods as status symbols abroad.

Research on the decision-making of return freight insurance considering consumer behavior under the omni-channel model

This article considers that consumers choose offline returns under the omni-channel model to bring additional benefits to retailers, and studies the impact of different freight insurance delivery strategies on the pricing and consumer behavior of omni-channel retailers. Establish consumer utility function and corporate profit maximization model. Research has shown that consumers’ satisfaction with the three ways that companies do not provide return freight insurance for consumers’ online return, companies offer return freight insurance for consumers’ online return, and companies do not provide return freight insurance for consumers’ offline return when the price is high, free return shipping insurance can maximize the company’s online benefits, while not providing return shipping insurance services can maximize the company’s offline benefits, reducing commodity prices, and improving offline store service levels to further increase revenue; improve products Packaging quality to increase the net residual value of the product by ensuring the integrity of the product has a positive impact on increasing market share and corporate profits.

Pricing and incentive strategy for construction supply chain w ith carbon emission sensitive heterogeneous demand and gove rnment subsidies

Based on consumers’ purchase intention, this paper obtains the utility function of carbon emission sensitive heterogeneous consumers and establishes a two-level supply chain model composed of the owner and the contractor under the government subsidy. Based on the principle of maximizing the profits of each member of the supply chain, the optimal pricing, incentive intensity and emission reduction effort level of the owners and contractors are obtained. On this basis, the influences of government subsidies, customer composition ratio and carbon sensitivity on the owner’s optimal decision are analyzed. The results show that, with the increase of government subsidies for the contractor emission reduction costs, the proportion of carbon emission-sensitive consumers and the carbon sensitivity of consumers will increase, and the market demand will be increased, which will not only improve the profits of owners and contractors, but also the contractors’ emission reduction efforts. It can provide decision-making reference for enterprise product pricing, emission reduction and government subsidies.