Pricing And Inventory Management With Disappointment Aversion Customers

Pursuing-fashion customers will be disappointed if they fail to purchase fashionable product when discounted. Given the selling circle is divided into two periods, strategic customers with random demand can either buy the product in period 1 with full price or wait for the price decreasing in period 2 with uncertainty in the availability of product, meanwhile the valuation to the product is decreasing. The vendors have to determine the price and inventory policies at the very beginning of the period 1. This paper studies joint pricing and inventory management policies considering disappointment aversion of the customers and valuation decreasing to the product. The greater the disappointment aversion is, the more the ordering quantity will be at the first period, and the more profit the vendors can get from higher price of product. The faster the valuation decreases, the less the ordering quantity will be at the first period, and the less profit the vendors can get from lower price of product. Furthermore, it is concluded that the vendors will be more positive by taking most-favored-customer protection than price commitment strategy, because price commitment strategy cannot effects unless the disappointment aversion is tiny and the valuation decreases slow.