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Limit price
About: Limit price is a research topic. Over the lifetime, 4865 publications have been published within this topic receiving 148546 citations.
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TL;DR: In practice, consumers often fail to choose the best price because they search too little, become confused comparing prices, and/or show excessive inertia through too little switching away from past choices or default options as discussed by the authors.
Abstract: Both the “law of one price” and Bertrand’s (J Savants 67:499–508, 1883) prediction of marginal cost pricing for homogeneous goods rest on the assumption that consumers will choose the best price. In practice, consumers often fail to choose the best price because they search too little, become confused comparing prices, and/or show excessive inertia through too little switching away from past choices or default options. This is particularly true when price is a vector rather than a scalar, and consumers have limited experience in the relevant market. All three mistakes may contribute to positive markups that fail to diminish as the number of competing sellers increases. Firms may have an incentive to exacerbate these problems by obfuscating prices, thereby using complexity to make price comparisons difficult and soften competition. Possible regulatory interventions include: simplifying the choice environment, for instance by restricting price to be a scalar; advising consumers of their expected costs under each option; or choosing on behalf of consumers.
88 citations
TL;DR: In this article, the model of Burdett and Judd is generalized to the case of may goods, where consumers choose the best price observed for each good, and there are two classes of equilibria, those that involve constant expected profits for a good independently of price and those with increasing profits for every good in price.
88 citations
TL;DR: In this paper, the authors explain the phenomenon of price rigidity as the outcome of the optimal inventory policy of a multi-period profit-maximizing firm under demand and output uncertainties.
Abstract: This paper explains the phenomenon of price rigidity (or price smoothing) as the outcome of the optimal inventory policy of a multi-period profit-maximizing firm under demand and output uncertainties. Price smoothing may be manifested in two forms. First, price changes may be moderated with respect to those implied by the demand function; and second, the firm may choose to restrict price fluctuations by establishing upper and/or lower bounds on prices. We show that the extent of the asymmetry in price smoothing depends on the relationship between the inventory holding cost and the backlog penalty cost. Our model accommodates a wide range
88 citations
Posted Content•
87 citations
TL;DR: Pricing and replenishment policies for a high-tech product in a dual-channel supply chain that consists of a brick-and-mortar channel and an internet channel is explored and there is a severe price competition between the retail and online channel and product compatibility has a significant impact on the pricing policy.
87 citations