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dc.contributor.authorÖzer, Özalp
dc.contributor.authorZheng, Yanchong
dc.date.accessioned2017-05-30T16:59:12Z
dc.date.available2017-05-30T16:59:12Z
dc.date.issued2015-11
dc.date.submitted2013-01
dc.identifier.issn0025-1909
dc.identifier.issn1526-5501
dc.identifier.urihttp://hdl.handle.net/1721.1/109421
dc.description.abstractWe study a seller’s optimal pricing and inventory strategies when behavioral (nonpecuniary) motives affect consumers’ purchase decisions. In particular, the seller chooses between two pricing strategies, markdown or everyday low price, and determines the optimal prices and inventory level. Two salient behavioral motives that impact consumers’ purchase decisions and the seller’s optimal strategies are anticipated regret and misperception of product availability. Regret arises when a consumer initially chooses to wait but encounters stockout later, or when the consumer buys the product at the high price but realizes that the product is still available at the markdown price. In addition, consumers often perceive the product’s future availability to be different than its actual availability. We determine and quantify that both regret and availability misperception have significant operational and profit implications for the seller. For example, ignoring these behavioral factors can result in up to 10% profit losses. We contrast the roles of consumers’ strategic (pecuniary) motives with their behavioral (nonpecuniary) motives in affecting purchase, pricing, and inventory decisions. The presence of the behavioral motives reinstates the profitability of markdown over everyday low price, in sharp contrast to prior studies of only strategic motives that suggest the contrary. We characterize how and why strategic versus behavioral motives affect decisions in distinctive manners. In doing so, this paper also introduces and determines the behavioral benefits of pricing in leveraging consumers’ behavioral regularities. We advocate that tactics that may intensify consumers’ misperception of availability, such as disclosing low inventory levels, can have a far-reaching impact on improving the seller’s profit.en_US
dc.language.isoen_US
dc.publisherInstitute for Operations Research and the Management Sciences (INFORMS)en_US
dc.relation.isversionofhttp://dx.doi.org/10.1287/mnsc.2014.2147en_US
dc.rightsCreative Commons Attribution-Noncommercial-Share Alikeen_US
dc.rights.urihttp://creativecommons.org/licenses/by-nc-sa/4.0/en_US
dc.sourceSSRNen_US
dc.titleMarkdown or Everyday Low Price? The Role of Behavioral Motivesen_US
dc.typeArticleen_US
dc.identifier.citationÖzer, Özalp and Zheng, Yanchong. “Markdown or Everyday Low Price? The Role of Behavioral Motives.” Management Science 62, no. 2 (February 2016): 326–346en_US
dc.contributor.departmentSloan School of Managementen_US
dc.contributor.mitauthorZheng, Yanchong
dc.relation.journalManagement Scienceen_US
dc.eprint.versionAuthor's final manuscripten_US
dc.type.urihttp://purl.org/eprint/type/JournalArticleen_US
eprint.statushttp://purl.org/eprint/status/PeerRevieweden_US
dspace.orderedauthorsÖzer, Özalp; Zheng, Yanchongen_US
dspace.embargo.termsNen_US
dc.identifier.orcidhttps://orcid.org/0000-0002-6991-0649
mit.licenseOPEN_ACCESS_POLICYen_US


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