Dynamic quality policies with reference quality effects |
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Authors: | Régis Chenavaz |
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Institution: | 1. Kedge Business School, Aix-Marseille School of Economics, CNRS &2. EHESS, Domaine de Luminy, Marseille, France |
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Abstract: | Dynamic pricing policies with reference-price demand have been intensely analysed. Less studied are dynamic quality policies with reference-quality demand. This article studies the dynamic quality policy of a firm whose consumers use a reference point in their decision-making, in line with the principles of behavioural economics. More specifically, I consider reference quality formation in an optimal control setting. By solving on the basis of Pontryagin’s maximum principle, I obtain analytical solutions to the optimal quality policy. The managerial implications of quality reference for dynamic quality policy are discussed. |
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Keywords: | Dynamic quality product quality reference quality behavioural economics optimal control |
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