Product Demand Forecasting and Dynamic Pricing considering Consumers' Mental Accounting and Peak-End Reference Effects

We introduce a demand forecasting model for a monopolistic company selling products to consumers with double-entry mental accounting,which means consumers experience pleasure when consuming goods or service and feel pains when paying for them. moreover,as the monopolist changes prices,consumers form a reference price that adjusts an anchoring standard based on the lowest price that they perceived,namely,the peak-end anchoring. we obtain the steady state prices under three different payment schemes for two- and infinite-period. we also analyze the relationship between these steady prices and maximal profit and compare the steady state prices of different payment schemes by changing the double-entry mental accounting's parameters through numerical examples. the proposed model is computationally tractable for demand forecasting of realistic size. © 2014 wenjie bi and mengqi liu.