Pontificia Universidad Católica de Chile Pontificia Universidad Católica de Chile
Ferrer JC., Oyarzun D. and Vera J. (2012)

Risk averse retail pricing with robust demand forecasting. http://dx.doi.org/10.1016/j.ijpe.2011.09.026

Revista : International Journal of Production Economics
Volumen : 131
Número : 1
Páginas : 151-160
Tipo de publicación : ISI Ir a publicación


Good demand estimates are the key to effective pricing decision-making. However, they are subject to a high degree of uncertainty due to various factors that are unpredictable or difficult to model, thus making pricing decisions risky. This research provides a simple proposal for a robust optimization methodology that incorporates both demand uncertainty and the decision maker’s degree of risk aversion. Uncertainty is explicitly considered for two coefficients of a linear demand function, price expressions are derived, and a criterion is proposed for defining the degree of risk aversion. The resulting model is also applied to an exponential demand case to better reflect a more realistic retail setting.