OPTIMAL PRICING AND INVENTORY MANAGEMENT FOR A LOSS AVERSE FIRM WHEN FACING STRATEGIC CUSTOMERS.

This paper considers the joint inventory and pricing decision problem that a loss averse firm with reference point selling seasonal products to strategic consumers with risk preference and decreasing value. Consumers can decide whether to buy at the full price in stage 1, or to wait till stage 2 for the salvage price. They may not get the product if the product is sold out in stage 2. The firm aims to choose a base stock policy and find an optimal price to maximize its expected utility, while consumers aim to decide whether to buy or wait strategically for optimizing their payoffs. We formulate the problem as a Stackelberg game between the firm and the strategic consumers in which the firm is the leader. By deriving the rational expectation equilibrium, we find both the optimal stocking level and the full price in our model are lower than those in the classical model without strategic consumers, by which leads to a lower profit. Furthermore, it is shown that the reimbursement contract cannot alleviate the impact of strategic behavior of customers while the firm's profit can be improved by the price commitment strategy in most cases. Numerical studies are carried out to investigate the impact of strategic customer behavior and system parameters on the firm's optimal decisions. [ABSTRACT FROM AUTHOR]