Abstract: Perishable or seasonal products generally have a normal price at the beginning stage and a significantly reduced or discounted price toward the ending stage. Therefore, the strategic consumers will have a choice - either to buy in the first stage for fresh products or wait to purchase the products at a discounted price in the second stage. In this paper, the multi-product dynamic pricing is taken into account the reference effect and the strategic consumers. Due to the presence of the reference effect, the consumers’ utility function is a combination of the direct utility and the reference utility. On the other hand, the strategic consumers will choose between buying at the first stage or wait to buy at the second stage. This behavior will change the demand functions of the two stages. At the same time, the reference price is at store-level and it is being updated along with the change of the period by an exponential smoothing model. The price level of the whole store and the product’s historical price will influence the current demand. Therefore, a two-stage multi-period dynamic pricing model is built for multi-product. Based on supermodularity and complementarity theory, an analytical solution is derived for the steady state prices, and the properties of the optimal price path are revealed. The monotonic convergence property of the steady state price suggests that when the initial reference price is higher or lower than steady state reference price, the optimal pricing strategy is similar to skimming pricing strategy (i.e., penetration pricing strategy).

Key words: dynamic pricing, multi-product pricing, reference-dependence, strategic customer behavior