A revenue management pricing model with reference effects

Considering customers´ bounded-rationality purchasing behavior, this paper focuses on dynamic pricing decision with a static reference price in revenue management situations. Firstly, it defines the concept of multiplicative reference effect, and describes the characteristics of the reference effect and the demand function with multiplicative reference effect. Secondly, it constructs the optimal control model with continuous time and continuous prices. By solving the Hamilton- Jacobi equation, it presents the optimal price paths. Finally, it compares the pricing strategies with the GVR model without reference effect under different circumstances through simulation experiments. The results show that the stronger the reference effect is, the more it influences the optimal prices and total revenue. The optimal prices and revenue increase with the reference price. The markup policy is effective in high demand situations and the markdown policy is effective in low demand situations. In the situations with low demand and strong reference effect, the enterprises should adopt demand-oriented strategies. In other situations, they should adopt price-oriented strategies.