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Dynamic Slotting and Pricing Decisions in a Durable Product Supply Chain

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  • X. He

    (University of Texas at Dallas)

  • S. P. Sethi

    (University of Texas at Dallas)

Abstract

We consider a supply chain in which a manufacturer sells an innovative durable product to an independent retailer over its life cycle. We assume that the product demand follows a Bass-type diffusion process and that it is determined by the market influences, retail price of the product, and shelf space allocated to it. We consider the following retailer profit optimization strategies: (i) the myopic strategy of maximizing the current-period profit and (ii) the far-sighted strategy of maximizing the life-cycle profit. We characterize the optimal dynamic shelf-space allocation and retail pricing policies for the retailer and wholesale pricing policies for the manufacturer. We compute also these policies numerically. Surprisingly, we find that the manufacturer, and sometimes even the retailer, is better off with a myopic retailer strategy in some cases.

Suggested Citation

  • X. He & S. P. Sethi, 2008. "Dynamic Slotting and Pricing Decisions in a Durable Product Supply Chain," Journal of Optimization Theory and Applications, Springer, vol. 137(2), pages 363-379, May.
    • Handle: RePEc:spr:joptap:v:137:y:2008:i:2:d:10.1007_s10957-007-9330-x
    DOI: 10.1007/s10957-007-9330-x
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    References listed on IDEAS

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    1. Suresh P. Sethi, 2021. "Optimal Control Theory," Springer Texts in Business and Economics, Springer, edition 4, number 978-3-030-91745-6, October.
    2. Jehoshua Eliashberg & Abel P. Jeuland, 1986. "The Impact of Competitive Entry in a Developing Market Upon Dynamic Pricing Strategies," Marketing Science, INFORMS, vol. 5(1), pages 20-36.
    3. Yunzeng Wang & Yigal Gerchak, 2001. "Supply Chain Coordination when Demand Is Shelf-Space Dependent," Manufacturing & Service Operations Management, INFORMS, vol. 3(1), pages 82-87, August.
    4. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, October.
    5. Bruce Robinson & Chet Lakhani, 1975. "Dynamic Price Models for New-Product Planning," Management Science, INFORMS, vol. 21(10), pages 1113-1122, June.
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    Cited by:

    1. Kumar, Subodha & Sethi, Suresh P., 2009. "Dynamic pricing and advertising for web content providers," European Journal of Operational Research, Elsevier, vol. 197(3), pages 924-944, September.
    2. Bo Yan & Yanping Liu & Si Liu, 2023. "Corporate social responsibility in long‐term supply chain management," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 17-27, January.

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