Inter-Temporal Dynamic Pricing Of Substitutes Sold By Duopoly With The Strategic Behavior Of Consumers

Pricing is one of the most important factors that influence the success of a deal and it’s difficult for manufacturers to determine scientifically. However, with the rapid development of economy and the popularization of information technology, participants on the market can get more information easily. Then the pricing cost is getting lower and lower, and the consumers are becoming more and more rational. Therefore, the dynamic pricing strategy flourished in the market. As more and more manufacturers implement this strategy, the consumers will achieve rational expectations about the future trend in prices. Some consumers make their purchasing decision based on weighing the consumer surplus obtained through buying products in different sales cycles. These kinds of consumers become strategic consumers. In the above context, this paper studies two-period dynamic pricing strategy based on strategic consumers and two brands of substitutes which are sold by duopoly firms.We first search and analysis the related articles about dynamic pricing. We summary the research achievement and find out some insufficiency of these papers. Then we first construct a dynamic pricing model for the substitutes sold by duopoly in two selling cycles based on the pure strategic consumers and pure myopic consumers in the market. By analyzing the decision making processes of manufacturers and consumers, the optimal inter-temporal prices and maximize profits can be solved. In order to adjust our model to a more reality context, we extend the market to one filled with both strategic and myopic consumes. Then using the reverse analysis method, first, we build the second phase optimization model, after that, two cycles whole optimization model is established. Solving these two models in turn, the optimal pricing strategies based on the condition appear. At last, a numerical example is given to analyze the influence of the main parameters (product differentiation coefficient, value discount factor and the percentage) to the optimal pricing. We find that,1, As the product differentiation becomes smaller and smaller, two manufacturers are in a state of price competition and their profits falls down.2, With the value discount factor increase, the valuation differences of the product in two different selling cycles is getting narrower. The competitive and alternative of the same products is becoming stronger and stronger. To some extent, the whole market becomes more competitive, and it results to the falling profits.3, In a duopoly market, considering the strategic consumers’behavior can bring additional revenue to manufacturers and the entire market.4, As a mixed consumer market, the percentage of strategic consumers will influence the profit of the market and bring additional revenue. Especially, the number of strategic consumers is more than the myopic ones. In the process of building and solving models, dynamic economic theory, optimal control theory and the software MATHEMATICS are applied. This study provides some enlightenment for duopoly manufacturers on pricing decision.