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

Authors:
Ying Wei
Affiliations:
Université catholique de Louvain, CORE, Louvain-la-Neuve, Belgium 1348
Venue:
OR Spectrum
Year:
2012

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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.