Dynamic pricing of inventory with cancellation demand

Author: You P-S.

Source: Journal of the Operational Research Society, Volume 54, Number 10, October 2003 , pp. 1093-1101(9)

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Abstract:

When an inventory item has such a limited selling period that only a single supply order can be placed to satisfy future demand, a decision-maker must determine the quantity of the order to meet future demand and how to price this stock. Although this problem has received considerable attention, related investigations typically view the demand and selling price as exogenous parameters and assume that customers cannot cancel an order or return the product after purchasing the item. Pricing is, however, an important pervasive marketing vehicle that affects demand, and customers indeed cancel or return their orders after placing them. The newsboy problem is extended here so that demand is price-dependent and customers may cancel their orders. This paper seeks to develop decision rules to maximize the total expected profit over a given planning period. Analysis results demonstrate the feasibility of applying the order-up-to structure to yield the order quantity.Journal of the Operational Research Society (2003) 54, 1093–1101. doi:10.1057/palgrave.jors.2601619

Document Type: Research article

DOI: http://dx.doi.org/10.1057/palgrave.jors.2601619

Affiliations: 1: 1National Chia-Yi University, Chia-Yi, Taiwan

Publication date: 2003-10-01