Dynamic Inventory and Pricing Policy in a Periodic-Review Inventory System with Finite Ordering Capacity and Price Adjustment Cost

We consider a dynamic inventory control and pricing optimization problem in a periodic-review inventory system with price adjustment cost. Each order occurs with a fixed ordering cost; the ordering quantity is capacitated. We consider a sequential decision problem, where the firm first chooses the ordering quantity and then the sale price to maximize the expected total discounted profit over the sale horizon. We show that the optimal inventory control is partially characterized by a policy in four regions, and the optimal pricing policy is dependent on the inventory level after the replenishment decision. We present some numerical examples to explore the effects of various parameters on the optimal pricing and replenishment policy.