Optimal Price Reaction Strategies in the Presence of Active and Passive Competitors

Rainer Schlosser, Martin Boissier

Abstract

Many markets are characterized by pricing competition. Typically, competitors are involved that adjust their prices in response to other competitors with different frequencies. We analyze stochastic dynamic pricing models under competition for the sale of durable goods. Given a competitor’s pricing strategy, we show how to derive optimal response strategies that take the anticipated competitor’s price adjustments into account. We study resulting price cycles and the associated expected long-term profits. We show that reaction frequencies have a major impact on a strategy’s performance. In order not to act predictable our model also allows to include randomized reaction times. Additionally, we study to which extent optimal response strategies of active competitors are affected by additional passive competitors that use constant prices. It turns out that optimized feedback strategies effectively avoid a decline in price. They help to gain profits, especially, when aggressive competitors are involved.

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  19. Table 3: List of variables and parameters.
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Paper Citation


in Harvard Style

Schlosser R. and Boissier M. (2017). Optimal Price Reaction Strategies in the Presence of Active and Passive Competitors . In Proceedings of the 6th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES, ISBN 978-989-758-218-9, pages 47-56. DOI: 10.5220/0006118200470056


in Bibtex Style

@conference{icores17,
author={Rainer Schlosser and Martin Boissier},
title={Optimal Price Reaction Strategies in the Presence of Active and Passive Competitors},
booktitle={Proceedings of the 6th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,},
year={2017},
pages={47-56},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0006118200470056},
isbn={978-989-758-218-9},
}


in EndNote Style

TY - CONF
JO - Proceedings of the 6th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,
TI - Optimal Price Reaction Strategies in the Presence of Active and Passive Competitors
SN - 978-989-758-218-9
AU - Schlosser R.
AU - Boissier M.
PY - 2017
SP - 47
EP - 56
DO - 10.5220/0006118200470056