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The economic order decision with continuous dynamic pricing and batch supply

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  • Peters H.J.M.
  • Herings P.J.J.
  • Berg A.H.J. van den

    (GSBE)

Abstract

We study an infinite horizon model, where a seller orders his product in batches of fixed size. A sales strategy determines both the order moments and the sales path between these moments. Under some natural conditions on the sellers revenue function, the strategy that maximizes the sellers time-discounted revenue is determined. The optimal strategy is shown to be unique and is characterized by increasing prices in between order moments. We analyze the sensitivity of this strategy to the main parameters of the model batch size, batch cost, and discount rate. Surprisingly,increasing batch sizes may lead to lower optimal order times.

Suggested Citation

  • Peters H.J.M. & Herings P.J.J. & Berg A.H.J. van den, 2014. "The economic order decision with continuous dynamic pricing and batch supply," Research Memorandum 001, Maastricht University, Graduate School of Business and Economics (GSBE).
  • Handle: RePEc:unm:umagsb:2014001
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    File URL: https://cris.maastrichtuniversity.nl/portal/files/1564419/content
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    References listed on IDEAS

    as
    1. Transchel, Sandra & Minner, Stefan, 2009. "The impact of dynamic pricing on the economic order decision," European Journal of Operational Research, Elsevier, vol. 198(3), pages 773-789, November.
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    Keywords

    Optimization Techniques; Programming Models; Dynamic Analysis; Intertemporal Firm Choice and Growth; Financing; Investment; and Capacity; Production; Pricing; and Market Structure; Size Distribution of Firms;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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