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Dynamic pricing of inventory with cancellation demand

Author

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  • P-S You

    (National Chia-Yi University)

Abstract

When an inventory item has such a limited selling period that only a single supply order can be placed to satisfy future demand, a decision-maker must determine the quantity of the order to meet future demand and how to price this stock. Although this problem has received considerable attention, related investigations typically view the demand and selling price as exogenous parameters and assume that customers cannot cancel an order or return the product after purchasing the item. Pricing is, however, an important pervasive marketing vehicle that affects demand, and customers indeed cancel or return their orders after placing them. The newsboy problem is extended here so that demand is price-dependent and customers may cancel their orders. This paper seeks to develop decision rules to maximize the total expected profit over a given planning period. Analysis results demonstrate the feasibility of applying the order-up-to structure to yield the order quantity.

Suggested Citation

  • P-S You, 2003. "Dynamic pricing of inventory with cancellation demand," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 54(10), pages 1093-1101, October.
    • Handle: RePEc:pal:jorsoc:v:54:y:2003:i:10:d:10.1057_palgrave.jors.2601619
    DOI: 10.1057/palgrave.jors.2601619
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    References listed on IDEAS

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    Cited by:

    1. Avinadav, Tal & Henig, Mordecai I., 2015. "Exact accounting of inventory costs in stochastic periodic-review models," International Journal of Production Economics, Elsevier, vol. 169(C), pages 89-98.
    2. Kyunghoon Kang & Ki-sung Hong & Ki Hong Kim & Chulung Lee, 2017. "Shipment Consolidation Policy under Uncertainty of Customer Order for Sustainable Supply Chain Management," Sustainability, MDPI, vol. 9(9), pages 1-17, September.
    3. Hovelaque, Vincent & Duvaleix-Tréguer, Sabine & Cordier, Jean, 2009. "Effects of constrained supply and price contracts on agricultural cooperatives," European Journal of Operational Research, Elsevier, vol. 199(3), pages 769-780, December.
    4. Yeo, Wee Meng & Yuan, Xue-Ming, 2011. "Optimal inventory policy with supply uncertainty and demand cancellation," European Journal of Operational Research, Elsevier, vol. 211(1), pages 26-34, May.

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