Optimal pricing of a conspicuous product during a recession that freezes capital markets

J.P. Caulkins (1) , G. Feichtinger (2) , D. Grass (2) , R.F. Hartl (3) , P.M. Kort (4, 5)

1 H. John Heinz III School of Public Policy & Management
2 Department for Operations Research and Control Systems
3 University of Vienna [Vienna]
4 Tilburg University [Tilburg]
5 Department of Economics

This paper considers the problem of how to price a conspicuous product when the economy is in a recession that disrupts capital markets. A conspicuous product in this context is a luxury good for which demand is increasing in brand image. Brand image here means the ability of a consumer to impress observers by conspicuously displaying consumption of the good. Brand image is built up when the good is priced high enough to make it exclusive, and eroded if the good is discounted.

Mots clés: C61; M31; Pricing; Recession; Conspicuous product; Optimal control; Skiba point

Domaines: Économie et finance quantitative [q-fin]

J.P. Caulkins, G. Feichtinger, D. Grass, R.F. Hartl, P.M. Kort. Optimal pricing of a conspicuous product during a recession that freezes capital markets. Journal of Economic Dynamics and Control, 2010, 35 (1), pp.163. ⟨10.1016/j.jedc.2010.09.001⟩. ⟨hal-00753047⟩