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Maximizing Revenues of Perishable Assets with a Risk Factor

Author

Listed:
  • Youyi Feng

    (National University of Singapore, Republic of Singapore)

  • Baichun Xiao

    (Seton Hall University, South Orange, New Jersey and Long Island University, C. W. Post Campus, Brookville, New York)

Abstract

This article presents a risk-sensitive pricing model to maximize sales revenue of perishable commodities with fixed capacity and finite sales horizon. The model assumes a pair of predetermined prices and the Poisson demand process whose intensity is a decreasing function of price. When optimizing the expected revenue, management takes business risk into account by adding a penalty (or premium) to the objective function. We solve the continuous-time model with the exact solution in closed form. We further analyze the influence of risk attitude on optimal policies.

Suggested Citation

  • Youyi Feng & Baichun Xiao, 1999. "Maximizing Revenues of Perishable Assets with a Risk Factor," Operations Research, INFORMS, vol. 47(2), pages 337-341, April.
    • Handle: RePEc:inm:oropre:v:47:y:1999:i:2:p:337-341
    DOI: 10.1287/opre.47.2.337
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    References listed on IDEAS

    as
    1. Youyi Feng & Guillermo Gallego, 1995. "Optimal Starting Times for End-of-Season Sales and Optimal Stopping Times for Promotional Fares," Management Science, INFORMS, vol. 41(8), pages 1371-1391, 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.
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