DECISION ANALYTIC PRICING WITH CONSTANT PRICE ELASTICITIES

Kenneth Ko

Abstract


This article introduces a new pricing model which uses decision analysis and isoelastic demand functions. Using the methodologies discussed here will enable companies to choose prices that will maximize the profit of a given product based on the state of the economy. An exponential utility function is used to incorporate the risk attitude of the company. The use of the model is demonstrated through a case study on 2018 Chevrolet Malibus. The proper use of the model will “take the guesswork out” of the pricing decision and help companies make pricing decisions using the best available data.

Keywords: Pricing, Decision Analysis, Elasticity, Utility.

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References


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