Coordinated Lot-Sizing and Dynamic Pricing under a Supplier All-Units Quantity Discount

Abstract

We consider an economic order quantity model where the supplier offers an all-units quantity discount and a price sensitive customer demand. We compare a decentralized decision framework where selling price and replenishment policy are determined independently to simultaneous decision making. Constant and dynamic pricing are distinguished. We derive structural properties and develop algorithms that determine the optimal pricing and replenishment policy and show how quantity discounts not only influence the purchasing strategy but also the pricing policy. A sensitivity analysis indicates the impact of the fixed-holding cost ratio, the discount policy, and the customers' price sensitivity on the optimal decisions.

Keywords: Dynamic Pricing, Economic Order Quantity, Quantity-Discount, Procurement-Inventory Policies, Marketing-Operations Interface