Joint pricing and inventory control with a Markovian demand model

Rui Yin, Kumar Rajaram

Research output: Contribution to journalArticle

32 Scopus citations

Abstract

We consider the joint pricing and inventory control problem for a single product over a finite horizon and with periodic review. The demand distribution in each period is determined by an exogenous Markov chain. Pricing and ordering decisions are made at the beginning of each period and all shortages are backlogged. The surplus costs as well as fixed and variable costs are state dependent. We show the existence of an optimal (s, S, p)-type feedback policy for the additive demand model. We extend the model to the case of emergency orders. We compute the optimal policy for a class of Markovian demand and illustrate the benefits of dynamic pricing over fixed pricing through numerical examples. The results indicate that it is more beneficial to implement dynamic pricing in a Markovian demand environment with a high fixed ordering cost or with high demand variability.

Original languageEnglish (US)
Pages (from-to)113-126
Number of pages14
JournalEuropean Journal of Operational Research
Volume182
Issue number1
DOIs
StatePublished - Oct 1 2007
Externally publishedYes

Keywords

  • Joint pricing and inventory control
  • Markovian demand
  • Optimal feedback policy

ASJC Scopus subject areas

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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