Dynamic pricing policies for an inventory model with random windows of opportunities

Arnoud den Boer, Ohad Perry*, Bert Zwart

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We study a single-product fluid-inventory model in which the procurement price of the product fluctuates according to a continuous time Markov chain. We assume that a fixed order price, in addition to state-dependent holding costs are incurred, and that the depletion rate of inventory is determined by the sell price of the product. Hence, at any time the controller has to simultaneously decide on the selling price of the product and whether to order or not, taking into account the current procurement price and the inventory level. In particular, the controller is faced with the question of how to best exploit the random time windows in which the procurement price is low. We consider two policies, derive the associated steady-state distributions and cost functionals, and apply those cost functionals to study the two policies.

Original languageEnglish (US)
Pages (from-to)660-675
Number of pages16
JournalNaval Research Logistics
Volume65
Issue number8
DOIs
StatePublished - Dec 2018

Keywords

  • optimal order policies
  • single-product fluid-inventory model
  • stochastic systems

ASJC Scopus subject areas

  • Modeling and Simulation
  • Ocean Engineering
  • Management Science and Operations Research

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