A behavior-based pricing model in retail systems using game theory approach

Demand fluctuations, customer’s behavior and price of products can greatly impact on distribution systems. Here, pricing decisions in a distribution system is focused considering customer behavior in a competitive market. A behavior-based bi-level model is proposed to present the Stackelberg competition among the wholesalers and retailers in a distribution system under two distinct scenarios. The defined scenarios attempt to focus on profit and utility maximization for the distribution system and customers, respectively. In addition, behavior-based price discrimination is used in the current paper considering retail prices and customer geographical zones in the market. The developed model is finally carried on an industrial case problem to derive sensitivity analyses and compare different scenarios to get managerial insights.