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Pricing Strategy versus Heterogeneous Shopping Behavior under Market Price Dispersion

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Álvarez González, Francisco and Rey Simo, José Manuel and Sanchis, Raúl G. (2016) Pricing Strategy versus Heterogeneous Shopping Behavior under Market Price Dispersion. Abstract and Applied Analysis (325424). pp. 1-8. ISSN 1687-0409

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Official URL: http://dx.doi.org/10.1155/2016/3254240



Abstract

We consider the ubiquitous problem of a seller competing in a market of a product with dispersed prices and having limited information about both his competitors’ prices and the shopping behavior of his potential customers. Given the distribution of market prices, the distribution of consumers’ shopping behavior, and the seller’s cost as inputs, we find the computational solution for the pricing strategy that maximizes his expected profits. We analyze the seller’s solution with respect to different exogenous perturbations of parametric and functional inputs. For that purpose, we produce synthetic price data using the family of Generalized Error Distributions that includes normal and quasiuniform distributions as particular cases, and we also generate consumers’ shopping data from different behavioral assumptions. Our analysis shows that, beyond price mean and dispersion, the shape of the price distribution plays a significant role in the seller’s pricing solution. We focus on the seller’s response to an increasing diversity in consumers’ shopping behavior. We show that increasing heterogeneity in the shopping distribution typically lowers seller’s prices and expected profits.


Item Type:Article
Uncontrolled Keywords:Unitary production cost; Economic agents; Prices of competitors; Shopping behaviour.
Subjects:Social sciences > Economics > Commerce
Social sciences > Economics > Economic indicators
ID Code:55305
Deposited On:20 May 2019 08:42
Last Modified:20 May 2019 10:28

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