Optimization and optimality of a joint pricing and inventory control policy in periodic‐review systems with lost sales

Optimization and optimality of a joint pricing and inventory control policy in periodic‐review systems with lost sales

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Article ID: iaor2012371
Volume: 34
Issue: 1
Start Page Number: 243
End Page Number: 271
Publication Date: Jan 2012
Journal: OR Spectrum
Authors:
Keywords: combinatorial optimization, demand, decision: rules, inventory: order policies
Abstract:

This paper studies a periodic review dynamic pricing and inventory control problem with fixed ordering cost included. Demand is uncertain and price‐sensitive in a general form. At the end of each period, all unmet demand is lost. We focus on the optimization and optimality of an (s, S, p)‐type policy, which operates as follows: whenever the inventory level is less than or equal to s, an order is placed to order‐up‐to level S; when the inventory level is larger than s, no order is issued; the price p is specified by the inventory level. We further numerically investigate the optimal solutions and their sensitivity to cost parameters and demand uncertainty.

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