In order to analyze the effects of consumers double-entry mental accounting and reference dependent behavior on firm's long-term profits, dynamic pricing problems are considered in this paper under three different payment schemes, i.e., pay-per-use, pre-pay and post-pay. By using discrete-time dynamic programming, we first derive the optimal price and optimal profit and their relationships in two-periods. This model is extended into indefinite periods and analyze the steady price. The results show that with linear demand function, the steady state price under pre-pay scheme and post-pay scheme is greater than that pay-per-use scheme. Moreover, the optimal pricing strategy is similar to skimming pricing (penetration pricing ) when the initial reference price is high(low). Finally, a numerical analysis is performed to compare the effects of the parameters of double-entry mental accounting on firm's long-term profits under different payment schemes. Also, some suggestions about how the firms choose the best payment schemes to extract optimal profits are proposed.
BI Wen-jie, CHEN Gen-yu, CHEN Xiao-hong
. Dynamic Pricing with Consumers' Double-entry Mental Accounting and Reference Effects[J]. Chinese Journal of Management Science, 2015
, 23(7)
: 142
-151
.
DOI: 10.16381/j.cnki.issn1003-207x.2015.07.018
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