Pricing and inventory management in a system with multiple competing retailers under (r, Q) policies

Authors:
Ruoxi Guan;Xiaobo Zhao
Affiliations:
Department of Industrial Engineering, Tsinghua University, Beijing 100084, China;Department of Industrial Engineering, Tsinghua University, Beijing 100084, China
Venue:
Computers and Operations Research
Year:
2011

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Abstract

We consider a multi-retailer system operated on an infinite horizon, in which each retailer faces stochastic demand following a Poisson process and adopts a continuous-review (r, Q) policy for replenishing inventory to satisfy customer demand. The system involves decisions of pricing and inventory management with the goal of maximizing profit, which equals the sales revenue minus the purchase and inventory costs. Taking Cournot competition into account, models are formulated to optimize simultaneously the expected sales volumes and (r, Q) policies of all retailers. An efficient approach is proposed to calculate the approximate inventory cost. Based on this approach, solution methods for centralized and decentralized scenarios are developed. A great number of numerical computations are provided to evaluate the efficiency of the solution methods, and their performance in the two scenarios. Moreover, system performance under sequential decisions (first pricing and then inventory management) is also investigated.