Optimal Pricing: The Case of Inter-temporal Effects of Snobbish and Deal-Prone Customers

(1. Department of Management, Bar-Ilan University, Israel; University of Pennsylvania Philadelphia 19104, USA;

3. The College of Business Administration, Rishon LiTzion 75190, Israel)

Abstract: We expand on the work of Kahneman and Tversky and further develop the optimal pricing policy given a reference price that generates psychological effects. We suggest the possibility of the existence of an inter-temporal effect between two groups of customers: the snobbish customers (leaders) and the deal-prone customers (followers). The pricing trajectories of a monopoly between periods are examined for different scenarios and the cyclical fluctuations in pricing over time are developed.