On a dynamic pricing model with a possibility to exit the market
Ertekin, Elifnas (2018) On a dynamic pricing model with a possibility to exit the market. [Thesis]
Taking pricing decisions over time is an important tool to maximize profit in revenue management. In most of the literature with dynamic pricing and stochastic demand, costs are considered as fixed components independent of the pricing policy. Due to the fact, exiting the market is not included as an option in these models. Next to revenue through sales, in this thesis we comprise inventory holding cost which leads staying in the market to be costly. Therefore, we consider the possibility to exit the market before the season ends. In particular, we deal with the problem of selling a seasonal product in a retail store over a finite sales season. Initial order quantity is also a decision variable; hence, we consider ordering cost per item. During the season, inventory replenishment or backlogging is not allowed. In continuous time demand model which is our proposed model, Poisson sales process is assumed with arrival rate function depending on both the time of arrival and the price of the product. At predetermined decision moments known at the beginning, the supplier has to decide either staying in the market and adjusting the price or exiting the market and selling the leftover inventory at a certain salvage value. We formulate both our proposed model and discrete time demand model by dynamic programming techniques. Static version of our proposed model is also provided. For numerical experiments, we investigate the sensitivity of the optimal pricing policy with respect to different problem parameters of a given base scenario.
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