Pricing strategy considering reference price effect

Abstract To investigate the pricing decisions in a dual-channel supply chain consisting of a manufacturer’s online sales channel and a retailer’s traditional offline channel, we establish fundamental models incorporating consumers' reference price effect and the free-riding effect, and then, we design a two-part pricing coordination mechanism. The results indicate that as the proportion of consumers with a high reference price increase, supply chain members achieve higher profitability, and a continuous increase in the retailer’s promotional effort enables consumers to gain product knowledge more quickly, and enhance overall market efficiency.