TY - JOUR
T1 - A production-inventory problem with price-sensitive demand
AU - Singer, Gonen
AU - Khmelnitsky, Eugene
N1 - Publisher Copyright:
© 2020
PY - 2021/1
Y1 - 2021/1
N2 - This paper deals with the problem of setting an optimal price for a product. The product is priced by maximizing the objective function, which accounts for both income from sales and operational costs. Since the price-sensitive demand is the common factor that determines the two components of the objective, it is used as an independent decision variable. We develop a closed-form solution for the discounted infinite-horizon variety of the problem. For a finite horizon, we suggest an approximate numerical procedure that sets the price dynamically as the horizon-length decreases, such as may occur, for example, towards the end of the sales period. When modeling the operational cost component, we consider a stochastic production-inventory problem and solve it using optimal control methods. In particular, we show that the optimal production policy is of a threshold type and we calculate the threshold value.
AB - This paper deals with the problem of setting an optimal price for a product. The product is priced by maximizing the objective function, which accounts for both income from sales and operational costs. Since the price-sensitive demand is the common factor that determines the two components of the objective, it is used as an independent decision variable. We develop a closed-form solution for the discounted infinite-horizon variety of the problem. For a finite horizon, we suggest an approximate numerical procedure that sets the price dynamically as the horizon-length decreases, such as may occur, for example, towards the end of the sales period. When modeling the operational cost component, we consider a stochastic production-inventory problem and solve it using optimal control methods. In particular, we show that the optimal production policy is of a threshold type and we calculate the threshold value.
KW - Optimal control
KW - Pricing policy
KW - Threshold policy
KW - Wiener process
UR - http://www.scopus.com/inward/record.url?scp=85089693951&partnerID=8YFLogxK
U2 - 10.1016/j.apm.2020.06.072
DO - 10.1016/j.apm.2020.06.072
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AN - SCOPUS:85089693951
SN - 0307-904X
VL - 89
SP - 688
EP - 699
JO - Applied Mathematical Modelling
JF - Applied Mathematical Modelling
ER -