A Robust Optimization Approach to Dynamic Pricing and Inventory Control with no Backorders |
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Authors: | Elodie Adida Georgia Perakis |
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Institution: | (1) Operations Research Center, MIT, Cambridge, MA 02139, USA;(2) Sloan School of Management, MIT, Cambridge, MA 02139, USA |
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Abstract: | In this paper, we present a robust optimization formulation for dealing with demand uncertainty in a dynamic pricing and inventory
control problem for a make-to-stock manufacturing system. We consider a multi-product capacitated, dynamic setting. We introduce
a demand-based fluid model where the demand is a linear function of the price, the inventory cost is linear, the production
cost is an increasing strictly convex function of the production rate and all coefficients are time-dependent. A key part
of the model is that no backorders are allowed. We show that the robust formulation is of the same order of complexity as
the nominal problem and demonstrate how to adapt the nominal (deterministic) solution algorithm to the robust problem. |
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Keywords: | |
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