Technical Note---A Note on the Structure of Joint Inventory-Pricing Control with Leadtimes

Authors:
Zhan Pang;Frank Y. Chen;Youyi Feng
Affiliations:
Department of Management Science, Lancaster University, Lancaster LA1 4YX, United Kingdom;Department of Management Science, City University of Hong Kong, Hong Kong;MIT-Zaragoza International Logistics Program, Zaragoza Logistics Center, Zaragoza 50197, Spain
Venue:
Operations Research
Year:
2012

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Abstract

We consider a joint inventory-pricing control problem for a periodic-review, single-stage inventory system with a positive order leadtime and a linear order cost. Demands in consecutive periods are independent, but their distributions depend on the price in accordance with a stochastic demand function of additive form. Pricing and ordering decisions are made simultaneously at the beginning of each period. The objective is to maximize the total expected discounted profit over a finite horizon. We partially characterize the structure of the optimal joint ordering and pricing policies. We also show that our structural analysis can be extended to a multistage (or serial) inventory system with constant or stochastic leadtimes and an assemble-to-order system with price-sensitive demand.