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Optimal EOQ for Announced Price Increases in Infinite Horizon

Author

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  • Wei Huang

    (Department of Operations Research, University of North Carolina, Chapel Hill, North Carolina 27599-3180)

  • Vidyadhar G. Kulkarni

    (Department of Operations Research, University of North Carolina, Chapel Hill, North Carolina 27599-3180)

  • Jayashankar M. Swaminathan

    (Kenan-Flagler Business School, University of North Carolina, Chapel Hill, North Carolina 27599-3490)

Abstract

In this paper we consider an infinite horizon economic order quantity (EOQ) model with single announced price increase, with an option of placing a special order just before the price increase takes effect. We extend earlier work where it is assumed that the special order is an integral multiple of the new EOQ quantity. In the process, we show that when the assumption of integrality is not valid, the earlier approach of minimizing the cost difference over a finite horizon is no longer valid and establish the periodicity of cost difference function. Next, we show that the Cesaro limit of the function exists and utilize that to derive the optimal special-order quantity. We find that the optimal special-ordering policy is of ( s , S ) type.

Suggested Citation

  • Wei Huang & Vidyadhar G. Kulkarni & Jayashankar M. Swaminathan, 2003. "Optimal EOQ for Announced Price Increases in Infinite Horizon," Operations Research, INFORMS, vol. 51(2), pages 336-339, April.
    • Handle: RePEc:inm:oropre:v:51:y:2003:i:2:p:336-339
    DOI: 10.1287/opre.51.2.336.12785
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    References listed on IDEAS

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    1. Benjamin Lev & Howard J. Weiss, 1990. "Inventory Models with Cost Changes," Operations Research, INFORMS, vol. 38(1), pages 53-63, February.
    2. Goyal, S. K. & Srinivasan, G. & Arcelus, F. J., 1991. "One time only incentives and inventory policies," European Journal of Operational Research, Elsevier, vol. 54(1), pages 1-6, September.
    3. Sam G. Taylor & Charles E. Bradley, 1985. "Optimal Ordering Strategies for Announced Price Increases," Operations Research, INFORMS, vol. 33(2), pages 312-325, April.
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    Cited by:

    1. Suresha Kharvi & T. P. M. Pakkala & G. Srinivasan, 2019. "Ordering policies under currency risk sharing agreements: a Markov chain approach," OPSEARCH, Springer;Operational Research Society of India, vol. 56(3), pages 945-964, September.
    2. Taleizadeh, Ata Allah & Zarei, Hamid Reza & Sarker, Bhaba R., 2017. "An optimal control of inventory under probablistic replenishment intervals and known price increase," European Journal of Operational Research, Elsevier, vol. 257(3), pages 777-791.
    3. Ramasesh, Ranga V., 2010. "Lot-sizing decisions under limited-time price incentives: A review," Omega, Elsevier, vol. 38(3-4), pages 118-135, June.
    4. Suresha Kharvi & T. P. M. Pakkala, 2021. "An optimal inventory policy when purchase price follows geometric Brownian motion process," OPSEARCH, Springer;Operational Research Society of India, vol. 58(4), pages 835-851, December.
    5. Berling, Peter, 2008. "The capital cost of holding inventory with stochastically mean-reverting purchase price," European Journal of Operational Research, Elsevier, vol. 186(2), pages 620-636, April.
    6. Shaposhnik, Yaron & Herer, Yale T. & Naseraldin, Hussein, 2015. "Optimal ordering for a probabilistic one-time discount," European Journal of Operational Research, Elsevier, vol. 244(3), pages 803-814.
    7. Tianming Gao & Vasilii Erokhin & Aleksandr Arskiy, 2019. "Dynamic Optimization of Fuel and Logistics Costs as a Tool in Pursuing Economic Sustainability of a Farm," Sustainability, MDPI, vol. 11(19), pages 1-16, October.
    8. Taleizadeh, Ata Allah & Pentico, David W., 2013. "An economic order quantity model with a known price increase and partial backordering," European Journal of Operational Research, Elsevier, vol. 228(3), pages 516-525.

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