Ordering and pricing of service products in an advance sales system with price-dependent demand

Ordering and pricing of service products in an advance sales system with price-dependent demand

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Article ID: iaor200749
Country: Netherlands
Volume: 170
Issue: 1
Start Page Number: 57
End Page Number: 71
Publication Date: Apr 2006
Journal: European Journal of Operational Research
Authors:
Keywords: service
Abstract:

This investigation addresses a service inventory control problem in which a firm orders and sells a service which will be used or consumed by customers on a specific future date. The firm sells the product through an advance booking system, aiming to optimize product price to maximize the total expected profit. Considering situations in which product demand is price-dependent and customers with reservations may cancel advance orders, this work develops a continuous-time model to simultaneously determine the order quantity and selling prices. The analytical results reveal that the optimal ordering quantity and prices are derived via closed-form solutions. In addition, sensitivity analysis of the optimal prices with respect to the system parameters is also conducted to illustrate optimal decision characteristics.

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