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A Polynomial Time Algorithm for a Deterministic Joint Pricing and Inventory Model

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  • van den Heuvel, W.
  • Wagelmans, A.P.M.

Abstract

In this paper we consider the uncapacitated economic lot-size model, where demand is a deterministic function of price. In the model a single price need to be set for all periods. The objective is to find an optimal price and ordering decisions simultaneously. In 1973 Kunreuther and Schrage proposed an heuristic algorithm to solve this problem. The contribution of our paper is twofold. First, we derive an exact algorithm to determine the optimal price and lot-sizing decisions. Moreover, we show that our algorithm boils down to solving a number of lot-sizing problems that is quadratic in the number of periods, i.e., the problem can be solved in polynomial time.

Suggested Citation

  • van den Heuvel, W. & Wagelmans, A.P.M., 2003. "A Polynomial Time Algorithm for a Deterministic Joint Pricing and Inventory Model," ERIM Report Series Research in Management ERS-2003-065-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    • Handle: RePEc:ems:eureri:929
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    References listed on IDEAS

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    1. Howard Kunreuther & Linus Schrage, 1973. "Joint Pricing and Inventory Decisions for Constant Priced Items," Management Science, INFORMS, vol. 19(7), pages 732-738, March.
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    Cited by:

    1. Brahimi, Nadjib & Absi, Nabil & Dauzère-Pérès, Stéphane & Nordli, Atle, 2017. "Single-item dynamic lot-sizing problems: An updated survey," European Journal of Operational Research, Elsevier, vol. 263(3), pages 838-863.
    2. Bajwa, Naeem & Sox, Charles R. & Ishfaq, Rafay, 2016. "Coordinating pricing and production decisions for multiple products," Omega, Elsevier, vol. 64(C), pages 86-101.
    3. Mehmet Önal & H. Edwin Romeijn, 2010. "Multi‐item capacitated lot‐sizing problems with setup times and pricing decisions," Naval Research Logistics (NRL), John Wiley & Sons, vol. 57(2), pages 172-187, March.
    4. Jans, R.F. & Degraeve, Z., 2005. "Modeling Industrial Lot Sizing Problems: A Review," ERIM Report Series Research in Management ERS-2005-049-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    5. Awi Federgruen & Joern Meissner, 2009. "Competition under time‐varying demands and dynamic lot sizing costs," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(1), pages 57-73, February.
    6. Joseph Geunes & H. Edwin Romeijn & Kevin Taaffe, 2006. "Requirements Planning with Pricing and Order Selection Flexibility," Operations Research, INFORMS, vol. 54(2), pages 394-401, April.
    7. Shiming Deng & Candace A. Yano, 2006. "Joint Production and Pricing Decisions with Setup Costs and Capacity Constraints," Management Science, INFORMS, vol. 52(5), pages 741-756, May.
    8. Yasemin Merzifonluoğlu & Joseph Geunes & H.E. Romeijn, 2007. "Integrated capacity, demand, and production planning with subcontracting and overtime options," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(4), pages 433-447, June.
    9. van den Heuvel, W. & Kundakcioglu, O.E. & Geunes, J. & Romeijn, H.E. & Sharkey, T.C. & Wagelmans, A.P.M., 2007. "Integrated market selection and production planning: complexity and solution approaches," Econometric Institute Research Papers EI 2007-45, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    10. Geunes, Joseph & Merzifonluoglu, Yasemin & Romeijn, H. Edwin, 2009. "Capacitated procurement planning with price-sensitive demand and general concave-revenue functions," European Journal of Operational Research, Elsevier, vol. 194(2), pages 390-405, April.
    11. W K Chiang & Y Feng, 2010. "Retailer or e-tailer? Strategic pricing and economic-lot-size decisions in a competitive supply chain with drop-shipping," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(11), pages 1645-1653, November.
    12. Wu, Xiang & (Yale) Gong, Yeming & Xu, Haoxuan & Chu, Chengbin & Zhang, Jinlong, 2017. "Dynamic lot-sizing models with pricing for new products," European Journal of Operational Research, Elsevier, vol. 260(1), pages 81-92.

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    More about this item

    Keywords

    inventory; lot-sizing; pricing; production;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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