A behavior-based pricing model in retail systems using game theory approach

Document Type : Research Paper

Authors

Department of systems and Industrial Engineering, Amirkabir University, Tehran, Iran

Abstract

Demand fluctuations, customer’s behavior and price of products can greatly impact on distribution systems. Here, pricing decisions in a distribution system is focused considering customer behavior in a competitive market. A behavior-based bi-level model is proposed to present the Stackelberg competition among the wholesalers and retailers in a distribution system under two distinct scenarios. The defined scenarios attempt to focus on profit and utility maximization for the distribution system and customers, respectively. In addition, behavior-based price discrimination is used in the current paper considering retail prices and customer geographical zones in the market. The developed model is finally carried on an industrial case problem to derive sensitivity analyses and compare different scenarios to get managerial insights.

Keywords

Main Subjects


Alaei, S. and M. Setak (2014). "Designing of supply chain coordination mechanism with leadership considering (research note)." International Journal of Engineering-Transactions C: Aspects 27(12): 1888.
Ali, S. A. M. (2019). "Determinants of customer satisfaction and customer loyalty: exploring the moderating role of switching cost and customer experience among Malaysian postpaid mobile phone users."
Ali, S. M., M. H. Rahman, T. J. Tumpa, A. A. M. Rifat and S. K. Paul (2018). "Examining price and service competition among retailers in a supply chain under potential demand disruption." Journal of Retailing and Consumer Services 40: 40-47.
Anderson, S. P. and A. De Palma (2000). "From local to global competition." European Economic Review 44(3): 423-448.
Batarfi, R., M. Y. Jaber and C. H. Glock (2019). "Pricing and inventory decisions in a dual-channel supply chain with learning and forgetting." Computers & Industrial Engineering 136: 397-420.
Caves, D., K. Eakin and A. Faruqui (2000). "Mitigating price spikes in wholesale markets through market-based pricing in retail markets." The Electricity Journal 13(3): 13-23.
Chen, Y. (2005). "Oligopoly price discrimination by purchase history." The Pros and Cons of Price Discrimination: 101-130.
Chen, Y. and J. Pearcy (2010). "Dynamic pricing: when to entice brand switching and when to reward consumer loyalty." The RAND Journal of Economics 41(4): 674-685.
Chen, Z., Y. Su, X.-y. Wang and Y. Wu (2021). "The price discrimination and environmental effectiveness in carbon emission trading schemes: A theoretical approach." Journal of Cleaner Production 283: 125196.
Choe, C., S. King and N. Matsushima (2017). "Pricing with Cookies: Behavior-Based Price Discrimination and Spatial Competition." Management Science.
Das, S. R., P. Hanouna and A. Sarin (2009). "Accounting-based versus market-based cross-sectional models of CDS spreads." Journal of Banking & Finance 33(4): 719-730.
Esteves, R.-B. and S. Cerqueira (2017). "Behavior-based pricing under imperfectly informed consumers." Information Economics and Policy 40: 60-70.
Esteves, R.-B. and C. Reggiani (2014). "Elasticity of demand and behaviour-based price discrimination." International Journal of Industrial Organization 32: 46-56.
Ghomi-Avili, M., R. Tavakkoli-Moghaddam, S. G. Jalali Naeini and A. Jabbarzadeh (2020). "Competitive green supply chain network design model considering inventory decisions under uncertainty: a real case of a filter company." International Journal of Production Research: 1-20.
Gu, Y. and T. Wenzel (2009). "A note on the excess entry theorem in spatial models with elastic demand." International Journal of Industrial Organization 27(5): 567-571.
Gupta, V., D. Ivanov and T.-M. Choi (2021). "Competitive pricing of substitute products under supply disruption." Omega 101: 102279.
Huang, Y., G. Q. Huang and S. T. Newman (2011). "Coordinating pricing and inventory decisions in a multi-level supply chain: A game-theoretic approach." Transportation Research Part E: Logistics and Transportation Review 47(2): 115-129.
Jabarzare, N. and M. Rasti-Barzoki (2020). "A game theoretic approach for pricing and determining quality level through coordination contracts in a dual-channel supply chain including manufacturer and packaging company." International Journal of Production Economics 221: 107480.
Jena, S. K., S. P. Sarmah and S. C. Sarin (2019). "Price competition between high and low brand products considering coordination strategy." Computers & Industrial Engineering 130: 500-511.
Li, C., M. Chu, C. Zhou and L. Zhao (2020). "Two-period discount pricing strategies for an e-commerce platform with strategic consumers." Computers & Industrial Engineering 147: 106640.
Liu, X., K. Lin, L. Wang and L. Ding (2020). "Pricing Decisions for a Sustainable Supply Chain in the Presence of Potential Strategic Customers." Sustainability 12(4): 1655.
Mahmoodi, A. and K. Eshghi (2014). "Price competition in duopoly supply chains with stochastic demand." Journal of Manufacturing Systems 33(4): 604-612.
McCormick, G. P. (1976). "Computability of global solutions to factorable nonconvex programs: Part I—Convex underestimating problems." Mathematical programming 10(1): 147-175.
Nero, G. (1999). "Full or partial market coverage? A note on spatial competition with elastic demand." Managerial and Decision Economics 20(2): 107-111.
Sajadieh, M. S. and C. Larsen (2015). "A coordinated manufacturer-retailer model under stochastic demand and production rate." International Journal of Production Economics 168: 64-70.
Shou, B., J. Huang and Z. Li (2009). "Managing supply uncertainty under chain-to-chain competition." Available at SSRN 1462589.
Thisse, J.-F. and X. Vives (1988). "On the strategic choice of spatial price policy." The American Economic Review: 122-137.
Tianhu, M., B. Jumpei and I. Yumiko (2017). "Analysis of Microgrid Contributing to Hour-ahead market operation through Marginal Day-ahead market Price-Based Demand Response." Energy Procedia 118: 119-127.
Wu, D., O. Baron and O. Berman (2009). "Bargaining in competing supply chains with uncertainty." European Journal of Operational Research 197(2): 548-556.
Yousefi, S., M. J. Rezaee and M. Solimanpur (2019). "Supplier selection and order allocation using two-stage hybrid supply chain model and game-based order price." Operational Research: 1-36.
Ziari, M. and M. S. Sajadieh (2021). "A behavior-based pricing model in retail systems considering vertical and horizontal competition." Computers & Industrial Engineering 152: 107054.

Articles in Press, Accepted Manuscript
Available Online from 01 July 2021
  • Receive Date: 26 June 2021
  • Accept Date: 26 June 2021