Article ID: | iaor20003291 |
Country: | United States |
Volume: | 45 |
Issue: | 11 |
Start Page Number: | 1510 |
End Page Number: | 1523 |
Publication Date: | Nov 1999 |
Journal: | Management Science |
Authors: | Sethi Suresh P., Cheng Feng |
Keywords: | marketing, markov processes, programming: dynamic, programming: markov decision |
In this paper, we use a Markov decision process (MDP) to model the joint inventory–promotion decision problem. The state variable of the MDP represents the demand state brought about by changing environmental factors as well as promotion decisions. The demand state in a period determines the distribution of the random demand in that period. Optimal inventory and promotion decision policies in the finite horizon problem are obtained via dynamic programming. Under certain conditions, we show that there is a threshold inventory level