Dynamic Pricing And Inventory Control With Demand Substitution: The Value Of Pricing Flexibility

Topics:
Inventory Management
Tags:
Customer Arrival,
Inventory Control,
Marketing,
Marketing Research,
Pricing,
Pricing Strategy
Source:
Northwestern University

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Overview: This paper studies a one-shot inventory replenishment problem with dynamic pricing. The customer arrival process is assumed either to be piecewise deterministic and correlated across time or to follow a geometric Brownian motion. Homogeneous customers have an iso-elastic demand function and do not behave strategically. For a monopolist facing a piecewise deterministic customer arrival process, we find a semi-closed (inductive) form optimal pricing policy, which depends on the history of the customer arrival process. If customer arrivals follow a geometric Brownian motion, the optimal pricing policy can be stated in closed form and the optimal inventory trajectory is deterministic.

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Format: PDF | Size: 369KB | Date: Jun 2004 | Pages: 40

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