Dynamic pricing, objective and subjective quality, and the price–quality relationship

Dynamic pricing and quality are known as important strategic variables for firms. However, the effects of objective quality (product features) and subjective quality (branding) need to be better understood. We use a dynamic optimization framework to model a firm's dynamic pricing and objective quality investment decisions over time. Our research contributes to the literature on the price–quality relationship with different analytical results. We provide a dynamic pricing rule and identifying the conditions below which more significant objective and subjective quality may lead to an increase or decrease in the price. In addition, a negative price–quality relationship is possible with both objective and subjective quality. Numerical illustrations show the robustness of the model and explore how varying parameter weights for objective and subjective quality influence outcomes. By integrating the distinct dynamics of objective and subjective qualities, this research contributes to the literature and provides actionable insights for developing more profitable marketing mix strategies.