223. Dynamic pricing when consumption develops habit and/or satiation: farsighted vs myopic customers
Invited abstract in session FA-4: Dynamics of the Firm, stream Continuous and Global Optimization.
Friday, 8:45-10:15Room: H6
Authors (first author is the speaker)
| 1. | Peter Kort
|
| Tilburg University | |
| 2. | Gustav Feichtinger
|
| Institute of Statistics and Mathematical Methods in Economics, Vienna University of Technology | |
| 3. | Andrea Seidl
|
| WU Vienna | |
| 4. | Franz Wirl
|
| Uiversity of Vienna | |
| 5. | Stefan Wrzaczek
|
| Economic Frontiers, Institute for Applied Systems Analysis (IIASA) |
Abstract
This paper examines monopolistic dynamic pricing strategies in the presence of customer habit formation and/or satiation. We find that penetration pricing is optimal when habit formation dominates, whereas satiation leads to the optimality of skimming pricing. Furthermore, we show that the optimal pricing strategy depends on whether customers are myopic or farsighted. With habit formation, both the firm and farsighted customers have an incentive to increase short-term consumption, as this enhances habit formation, ultimately boosting future demand and consumption utility. The firm capitalizes on this increased short-term demand by setting a higher price compared to when customers are myopic. Conversely, under satiation, the dynamics reverse, i.e., farsighted customers have less incentive to consume. In response, the firm lowers the price to mitigate demand reduction compared to the case of myopic customers.
Keywords
- Optimal Control
- Revenue Management and Pricing
- Game Theory
Status: accepted
Back to the list of papers