Markdown Pricing with Quality Perception

Hariss, Rim; Perakis, Georgia; Sinchaisri, Wichinpong Park; Zheng, Yanchong

doi:10.2139/ssrn.3634129

Cited by 2 publications

(2 citation statements)

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“…Ozer and Zheng (2016), Zhao (2016, 2017) and Kim and Dasu (2013) investigate the strategies of boundedly rational customers for a given price and inventory level, as well as their implications for the operations of the selling firm. Hariss et al (2016) accounts for consumers' price-based quality perceptions to reveal that retailers are better off announcing and committing to a markdown strategy. Cason and Mago (2013), Mak et al (2014), andKremer et al (2017) focus on the sellers' dynamic pricing decisions, where the inventory is exogenously endowed.…”

Section: Introductionmentioning

confidence: 99%

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Inventory Decisions in the Presence of Strategic Customers: Theory and Behavioral Evidence

Zhang

Mantin

2019

Production and Operations Management

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W e consider the inventory decision of a retailer facing strategic customers. We develop a behavioral theory that accounts for reference dependence, which makes predictions on how the presence of strategic customers leverages retailer behavior. Specifically, the reference-dependent retailer shall decrease her order quantity when there are more strategic customers in the population. As such, the conventional pull-to-center bias for newsvendor is generalized, since the presence of strategic customers may induce the retailer to pull her order further below the center even when the production cost is low. Furthermore, increasing proportion of strategic customers reduces the retailer's ordering bias under low cost, yet amplifies it when the cost is high. Our subsequent experiments find pull-below-center effect, validate the theoretical predictions, and establish the asymmetry of reference dependence with the estimated behavioral parameters. We also study extensions to our model and carry out robustness checks of our experimental results.

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Section: Introductionmentioning

confidence: 99%

“…Hariss et al. (2016) accounts for consumers’ price‐based quality perceptions to reveal that retailers are better off announcing and committing to a markdown strategy. Cason and Mago (2013), Mak et al.…”

Section: Introductionmentioning

confidence: 99%