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Optimal dynamic pricing of inventories with stochastic demand and discounted criterion

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Author Info

  • Cao, Ping
  • Li, Jianbin
  • Yan, Hong
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    Abstract

    We consider a continuous time dynamic pricing problem for selling a given number of items over a finite or infinite time horizon. The demand is price sensitive and follows a non-homogeneous Poisson process. We formulate this problem as to maximize the expected discounted revenue and obtain the structural properties of the optimal revenue function and optimal price policy by the Hamilton–Jacobi–Bellman (HJB) equation. Moreover, we study the impact of the discount rate on the optimal revenue function and the optimal price. Further, we extend the problem to the case with discounting and time-varying demand, the infinite time horizon problem. Numerical examples are used to illustrate our analytical results.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0377221711009015
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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 217 (2012)
    Issue (Month): 3 ()
    Pages: 580-588

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    Handle: RePEc:eee:ejores:v:217:y:2012:i:3:p:580-588

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Revenue management; HJB equation; Optimal pricing; Discounted criterion;

    References

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    1. Gabriel Bitran & René Caldentey, 2003. "An Overview of Pricing Models for Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 5(3), pages 203-229, August.
    2. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
    3. Chatwin, Richard E., 2000. "Optimal dynamic pricing of perishable products with stochastic demand and a finite set of prices," European Journal of Operational Research, Elsevier, vol. 125(1), pages 149-174, August.
    4. Youyi Feng & Baichun Xiao, 2000. "A Continuous-Time Yield Management Model with Multiple Prices and Reversible Price Changes," Management Science, INFORMS, vol. 46(5), pages 644-657, May.
    5. Varda Liberman & Uri Yechiali, 1978. "On the Hotel Overbooking Problem--An Inventory System with Stochastic Cancellations," Management Science, INFORMS, vol. 24(11), pages 1117-1126, July.
    6. Bulut, Zümbül & Gürler, Ülkü & Sen, Alper, 2009. "Bundle pricing of inventories with stochastic demand," European Journal of Operational Research, Elsevier, vol. 197(3), pages 897-911, September.
    7. Wedad Elmaghraby & P{\i}nar Keskinocak, 2003. "Dynamic Pricing in the Presence of Inventory Considerations: Research Overview, Current Practices, and Future Directions," Management Science, INFORMS, vol. 49(10), pages 1287-1309, October.
    8. Wen Zhao & Yu-Sheng Zheng, 2000. "Optimal Dynamic Pricing for Perishable Assets with Nonhomogeneous Demand," Management Science, INFORMS, vol. 46(3), pages 375-388, March.
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    Cited by:
    1. Wei, Jie & Zhao, Jing & Li, Yongjian, 2013. "Pricing decisions for complementary products with firms’ different market powers," European Journal of Operational Research, Elsevier, vol. 224(3), pages 507-519.

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