IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v157y2014icp302-312.html
   My bibliography  Save this article

Joint inventory and pricing decisions when customers are delay sensitive

Author

Listed:
  • Güler, M. Güray
  • Bilgiç, Taner
  • Güllü, Refik

Abstract

We consider the joint pricing and inventory problem of a capacity constrained service facility with several classes of customers. The customers are differentiated with their sensitivity for waiting and their willingness to pay for the service. We model the problem using an M/M/1 queueing system with non-preemptive priorities. We give closed form solutions for the inventory decisions. We also show that the prices given by the first order conditions are also incentive compatible in the sense that they optimize the profit of the firm even if the firm does not know the type of an arriving customer and let the customer choose a price from the menu of prices. We approximate the problem and provide simple and explicit solutions when there is a single customer type. In numerical illustrations, we show that the customers, who are more sensitive to wait, do not enter the system until the base stock level is above a threshold. We provide extensions of our results for M/G/1 and M/M/m systems.

Suggested Citation

  • Güler, M. Güray & Bilgiç, Taner & Güllü, Refik, 2014. "Joint inventory and pricing decisions when customers are delay sensitive," International Journal of Production Economics, Elsevier, vol. 157(C), pages 302-312.
    • Handle: RePEc:eee:proeco:v:157:y:2014:i:c:p:302-312
    DOI: 10.1016/j.ijpe.2014.04.028
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527314001546
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2014.04.028?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Philipp Afèche & Haim Mendelson, 2004. "Pricing and Priority Auctions in Queueing Systems with a Generalized Delay Cost Structure," Management Science, INFORMS, vol. 50(7), pages 869-882, July.
    2. René Caldentey & Lawrence M. Wein, 2003. "Analysis of a Decentralized Production-Inventory System," Manufacturing & Service Operations Management, INFORMS, vol. 5(1), pages 1-17, November.
    3. Ronald W. Wolff, 1982. "Poisson Arrivals See Time Averages," Operations Research, INFORMS, vol. 30(2), pages 223-231, April.
    4. Albert Y. Ha, 1997. "Inventory Rationing in a Make-to-Stock Production System with Several Demand Classes and Lost Sales," Management Science, INFORMS, vol. 43(8), pages 1093-1103, August.
    5. Zhao, Ning & Lian, Zhaotong, 2011. "A queueing-inventory system with two classes of customers," International Journal of Production Economics, Elsevier, vol. 129(1), pages 225-231, January.
    6. Michel Mandjes, 2004. "Pricing Strategies and Service Differentiation," Netnomics, Springer, vol. 6(1), pages 59-81, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hanukov, Gabi & Avinadav, Tal & Chernonog, Tatyana & Spiegel, Uriel & Yechiali, Uri, 2018. "Improving efficiency in service systems by performing and storing “preliminary services”," International Journal of Production Economics, Elsevier, vol. 197(C), pages 174-185.
    2. Shahsavar, Aria & Sadeghi, J. Kiarash & Shockley, Jeff & Ojha, Divesh, 2021. "On the relationship between lean scheduling and economic performance in shipbuilding: A proposed model and comparative evaluation," International Journal of Production Economics, Elsevier, vol. 239(C).
    3. Ehsan Ardjmand & Gary R. Weckman & William A. Young & Omid Sanei Bajgiran & Bizhan Aminipour, 2016. "A robust optimisation model for production planning and pricing under demand uncertainty," International Journal of Production Research, Taylor & Francis Journals, vol. 54(13), pages 3885-3905, July.
    4. Peng Hu & Ye Lu & Miao Song, 2019. "Joint Pricing and Inventory Control with Fixed and Convex/Concave Variable Production Costs," Production and Operations Management, Production and Operations Management Society, vol. 28(4), pages 847-877, April.
    5. Raza, Syed Asif, 2015. "An integrated approach to price differentiation and inventory decisions with demand leakage," International Journal of Production Economics, Elsevier, vol. 164(C), pages 105-117.
    6. Li, Yang & Liu, Feng, 2021. "Joint inventory and pricing control with lagged price responses," International Journal of Production Economics, Elsevier, vol. 241(C).
    7. Wang, Qiang & Zhao, Nenggui & Wu, Jie & Zhu, Qingyuan, 2021. "Optimal pricing and inventory policies with reference price effect and loss-Averse customers," Omega, Elsevier, vol. 99(C).
    8. Lin, Zhibing, 2016. "Price promotion with reference price effects in supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 85(C), pages 52-68.
    9. M. Güler & Taner Bilgiç & Refik Güllü, 2015. "Joint pricing and inventory control for additive demand models with reference effects," Annals of Operations Research, Springer, vol. 226(1), pages 255-276, March.
    10. Ahmadi-Javid, Amir & Hoseinpour, Pooya, 2015. "A location-inventory-pricing model in a supply chain distribution network with price-sensitive demands and inventory-capacity constraints," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 82(C), pages 238-255.
    11. Xiang Li & Yongjian Li, 2016. "On lot-sizing problem in a random yield production system under loss aversion," Annals of Operations Research, Springer, vol. 240(2), pages 415-434, May.
    12. Fathi, Mahdi & Khakifirooz, Marzieh & Diabat, Ali & Chen, Huangen, 2021. "An integrated queuing-stochastic optimization hybrid Genetic Algorithm for a location-inventory supply chain network," International Journal of Production Economics, Elsevier, vol. 237(C).
    13. Mokhtari, Hadi, 2018. "Economic order quantity for joint complementary and substitutable items," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 154(C), pages 34-47.
    14. Hsieh, Tsu-Pang & Dye, Chung-Yuan, 2017. "Optimal dynamic pricing for deteriorating items with reference price effects when inventories stimulate demand," European Journal of Operational Research, Elsevier, vol. 262(1), pages 136-150.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Josh Reed & Bo Zhang, 2017. "Managing capacity and inventory jointly for multi-server make-to-stock queues," Queueing Systems: Theory and Applications, Springer, vol. 86(1), pages 61-94, June.
    2. Jalili Marand, Ata & Li, Hongyan & Thorstenson, Anders, 2019. "Joint inventory control and pricing in a service-inventory system," International Journal of Production Economics, Elsevier, vol. 209(C), pages 78-91.
    3. Stratos Ioannidis & Alexandros S. Xanthopoulos & Ioannis Sarantis & Dimitrios E. Koulouriotis, 2021. "Joint production, inventory rationing, and order admission control of a stochastic manufacturing system with setups," Operational Research, Springer, vol. 21(2), pages 827-855, June.
    4. Yu, Yugang & Huang, George Q., 2010. "Nash game model for optimizing market strategies, configuration of platform products in a Vendor Managed Inventory (VMI) supply chain for a product family," European Journal of Operational Research, Elsevier, vol. 206(2), pages 361-373, October.
    5. Alarcón, F. & Alemany, M.M.E. & Ortiz, A., 2009. "Conceptual framework for the characterization of the order promising process in a collaborative selling network context," International Journal of Production Economics, Elsevier, vol. 120(1), pages 100-114, July.
    6. Tetsuji Hirayama, 2003. "Mean sojourn times in multiclass feedback queues with gated disciplines," Naval Research Logistics (NRL), John Wiley & Sons, vol. 50(7), pages 719-741, October.
    7. Satır, Benhür & Erenay, Fatih Safa & Bookbinder, James H., 2018. "Shipment consolidation with two demand classes: Rationing the dispatch capacity," European Journal of Operational Research, Elsevier, vol. 270(1), pages 171-184.
    8. Ananth V. Iyer & Apurva Jain, 2003. "The Logistics Impact of a Mixture of Order-Streams in a Manufacturer-Retailer System," Management Science, INFORMS, vol. 49(7), pages 890-906, July.
    9. Shone, Rob & Glazebrook, Kevin & Zografos, Konstantinos G., 2019. "Resource allocation in congested queueing systems with time-varying demand: An application to airport operations," European Journal of Operational Research, Elsevier, vol. 276(2), pages 566-581.
    10. Saif Benjaafar & Mohsen ElHafsi & Tingliang Huang, 2010. "Optimal control of a production‐inventory system with both backorders and lost sales," Naval Research Logistics (NRL), John Wiley & Sons, vol. 57(3), pages 252-265, April.
    11. Thomas Kittsteiner & Benny Moldovanu, 2005. "Priority Auctions and Queue Disciplines That Depend on Processing Time," Management Science, INFORMS, vol. 51(2), pages 236-248, February.
    12. Yanting Chen & Jingui Xie & Taozeng Zhu, 2023. "Overflow in systems with two servers: the negative consequences," Flexible Services and Manufacturing Journal, Springer, vol. 35(3), pages 838-863, September.
    13. Mohan L. Chaudhry & James J. Kim, 2016. "Analytically elegant and computationally efficient results in terms of roots for the $$GI^{X}/M/c$$ G I X / M / c queueing system," Queueing Systems: Theory and Applications, Springer, vol. 82(1), pages 237-257, February.
    14. Manlu Chen & Ming Hu & Jianfu Wang, 2022. "Food Delivery Service and Restaurant: Friend or Foe?," Management Science, INFORMS, vol. 68(9), pages 6539-6551, September.
    15. Mayorga, Maria E. & Ahn, Hyun-Soo, 2011. "Joint management of capacity and inventory in make-to-stock production systems with multi-class demand," European Journal of Operational Research, Elsevier, vol. 212(2), pages 312-324, July.
    16. Paul A. David, 2006. "Economic Policy Analysis and the Internet: Coming to Terms with a Telecommunications Anomaly," Discussion Papers 06-004, Stanford Institute for Economic Policy Research.
    17. Zhao, Chen & Wang, Zhongbin, 2023. "The impact of line-sitting on a two-server queueing system," European Journal of Operational Research, Elsevier, vol. 308(2), pages 782-800.
    18. Gabor, A.F. & Guang, Y. & Axsäter, S., 2014. "Comparison of two methods for customer differentiation," ERIM Report Series Research in Management ERS-2014-003-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    19. van Jaarsveld, W.L. & Dekker, R., 2009. "Finding optimal policies in the (S - 1, S ) lost sales inventory model with multiple demand classes," Econometric Institute Research Papers EI 2009-14, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    20. P. Escalona & F. Ordóñez & I. Kauak, 2017. "Critical level rationing in inventory systems with continuously distributed demand," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 39(1), pages 273-301, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:157:y:2014:i:c:p:302-312. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.