Limit price

About: Limit price is a research topic. Over the lifetime, 4865 publications have been published within this topic receiving 148546 citations.

Joint Pricing and Inventory Policies for Make-to-Stock Products with Deterministic Price-Sensitive Demand

Abstract: In this paper, we focus on a firm selling a single make-to-stock product to price-sensitive end customers. We develop an integrated operations-marketing model that can help determine the relevant profit-maximizing decision variable values for two pricing policies that the firm might follow - price as a decision variable, which is advocated by academicians, and mark-up pricing, used by most practitioners. We first consider an EOQ-based model with price and order quantity as independent decision variables. We then develop an analogous model where price is a mark-up over operating costs per unit, and order quantity becomes the sole decision variable. We are able to ascertain the optimal decision variable values for each model for log-linear and linear demand functions. We prove that for such profitmaximizing models, the optimal batch size is not necessarily monotone increasing in set-up cost. Interestingly, our numerical/analytical evidence suggests that from a profit perspective it is better for managers to be aggressive on price rather than reducing price too much, especially for highly price-sensitive and non-linear demand. Moreover, we establish that, in general, the profit penalty for not including inventory costs in determining the optimal batch size, or ignoring the batch size optimization issue in a mark-up price model is not significant. Only when the set-up cost is quite high and/or the firm faces non-linear demand from highly price-sensitive end consumers does it become crucial for managers to determine the exact optimal batch size and base the mark-up price on the entire unit operating cost, not only the unit (variable) production cost.

Skimming or Penetration? Strategic Dynamic Pricing for New Products

Abstract: Current complex dynamic markets are characterized by numerous brands, each with multiple products and price points, and differentiated on a variety of product attributes plus a large number of new product introductions. This study seeks to analyze dynamic pricing paths in a highly complex branded market, consisting of 663 products under 79 brand names of digital cameras. The authors develop a method to classify dynamic pricing strategies and analyze the choice and correlates of observed pricing paths in the introduction and early growth phase of this market. The authors find that, despite numerous recommendations in the literature for skimming or penetration pricing, market pricing dominates in practice. In particular, the authors find five patterns: skimming 20% frequency, penetration 20% frequency, and three variants of market-pricing patterns 60% frequency, where new products are launched at market prices. Skimming pricing launches the new product 16% above the market price and subsequently increases the price relative to the market price. Penetration pricing launches the new product 18% below the market price and subsequently lowers the price relative to the market price. Firms exhibit a mix of these pricing paths across their portfolios. The specific pricing paths correlate with market, firm, and brand characteristics such as competitive intensity, market pioneering, brand reputation, and experience effects. The authors discuss managerial implications.

Non-Linear Pricing

Abstract: This chapter focuses on the concept of nonlinear pricing. Pricing schedules can follow very different patterns. A uniform price per unit of quantity is only one alternative and, although very common, it is an extreme case. Natural monopolies whose products cannot be resold will typically tend to some sort of price differentiation. Uncertainty and administrative costs may prevent firms from fixing different prices for individual customers. However, some standardized forms of price differentiation can be found everywhere in public-utility pricing, the best-known being two-part and block tariffs. price structure that is interesting both theoretically and practically is the one that gives the individual customer the right to choose between two different two-part tariffs, usually a low fixed charge and higher unit prices or vice versa. In the more interesting case, the consumer has to declare ex ante which tariff he chooses. This choice of tariff implies a self-selection of consumers. The chapter presents a model for nonlinear pricing.

Small price changes and menu costs

Abstract: We find that while some individual price changes are indeed ‘small’, the average price change of different products within a store in any given month is not. Moreover, the smaller the price change of an individual product, the larger the average price change of the remaining products sold by the store. We argue that these findings are consistent with extensions of menu cost models of price-setting behavior to multiproduct firms when these firms have high average costs and low marginal costs of changing prices. Copyright © 2007 John Wiley & Sons, Ltd.