Economic Foundations for Pricing
Article Abstract:
To effectively make a pricing decision, it is necessary to understand the economic environment in which it will function and effects on pricing of three research disciplines: the economics of information, the economics of spatial competition, and the economics of segmented pricing. Economic models have not often provided useful algorithms for the implementation of pricing strategies, but they do furnish meaningful heuristics for assessing the sense of actions taken. Dealing, or temporary price cutting, is an essential part of pricing strategy for frequently purchased packaged items. Research in that field moved from no findings or correlation of demographic, socioeconomic or personality characteristics of dealers, to establishing deal proneness in the family as a productive entity. Within the area of the economics of information, asymmetric information and consumer information acquisition are important new directions. A sample model is featured in discussion of the principles of spatial competition. Segmenting pricing usually has the feature of price discrimination, or price structure that varies over time.
Publication Name: The Journal of Business
Subject: Business, general
ISSN: 0021-9398
Year: 1984
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Dynamic monopoly pricing under a Poisson-type uncertain demand
Article Abstract:
Dynamic models of pricing are developed by marketing scientists as tools for examining decision-making regarding the optimal pricing of products over time. One such model, developed as a stochastic control problem, is introduced. This dynamic pricing model considers diffusion and experience curve effects, as well as a Poisson type of uncertain demand. Specifically, it considers dynamic pricing in a monopoly that aims for discounted profit maximization. The model is analyzed using mathematical tools of stochastic calculus. Results show that, at optimality, the expected marginal benefits of raising prices to maximize profit is offset by the future expected marginal cost. The implications of integrating uncertainty into a monopolist's pricing policy are explored.
Publication Name: The Journal of Business
Subject: Business, general
ISSN: 0021-9398
Year: 1992
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Is the rational expectations hypothesis enough?
Article Abstract:
A model in which the number of equilibrium solutions is not restricted by the rational expectations hypothesis is presented. This suggests that assumptions about rationality may not significantly limit the range of predicted behaviors when used in economic models. A collaboration of economics and behavioral decision-making psychology may prove to be a useful means of reducing the number of solutions through equilibrium analysis.
Publication Name: The Journal of Business
Subject: Business, general
ISSN: 0021-9398
Year: 1986
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