Coordinating pricing and inventory control in a fluctuating environment |
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Authors: | Ju-liang Zhang Jian Chen Xiang-sun Zhang |
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Institution: | [1]Department of Logistics Management, School of Economics and Management, Beijing Jiaotong University,Beijing 100044, China [2]Department of Management Science and Engineering, School of Economics and Management, Tsinghua Uni-versity, Beijing 100084, China [3]Institute of Applied Mathematics, Academy of Mathematics and Systems Science, Chinese Academy of Sci-ences, Beijing 100190, China |
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Abstract: | This paper addresses the simultaneous determination of pricing and inventory replenishment strategies under a fluctuating
environment. Specifically, we analyze the single item, periodic review model. The demand consists of two parts: the deterministic
component, which is influenced by the price, and the stochastic component (perturbation). The distribution of the stochastic
component is determined by the current state of an exogenous Markov chain. The price that is charged in any given period can
be specified dynamically. A replenishment order may be placed at the beginning of some or all of the periods, and stockouts
are fully backlogged. Ordering costs that are lower semicontinuous, and inventory/backlog (or surplus) costs that are continuous
with polynomial growth. Finite-horizon and infinite-horizon problems are addressed. Existence of optimal policies is established.
Furthermore, optimality of (s,S,p)-type policies is proved when the ordering cost consists of fixed and proportional cost
components and the surplus cost (these costs are all state-dependent) is convex. |
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Keywords: | Stochastic inventory management Markov chains pricing finite horizon infinite horizon |
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