Joint inventory and pricing decisions in retail industry

Official URL: http://risc01.sabanciuniv.edu/record=b1147596 (Table of Contents)

In various industries, managers face the problem of setting prices dynamically over time and determining the replenishment quantities by a fixed deadline so as to maximize the expected profit over a finite and short selling horizon. This problem is especially significant for the retail industries which sell products with short life cycles and price dependent demand. In this thesis, it is assumed that a firm sells a single product over a selling season that is divided into a finite number of discrete time periods. At the beginning of each period, the firm has the option of replenishing the inventory and determining a new price for the product. The replenishment lead time is zero and unmet demand is lost where demand is sensitive to price. There is no fixed charge for ordering, and the total variable ordering cost is proportional to the ordering quantity. Similarly, the inventory holding cost incurred in each period is proportional to the end-of-period inventory. Unsold items at the end of the last period have a salvage value per unit. In this study, this joint inventory-pricing problem is analyzed, and solution methods are presented. In particular, we propose an e±cient solution method that is very fast and yields solutions very close to optimality.