Pricing and Manufacturing Decisions When Demand is a Function of Prices in Multiple Periods

Operations Research, 2007

62 Pages Posted: 21 Nov 2010

See all articles by Hyun-Soo Ahn

Hyun-Soo Ahn

University of Michigan, Stephen M. Ross School of Business

M. Gumus

McGill University - Desautels Faculty of Management

Philip Kaminsky

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR)

Date Written: November 19, 2007

Abstract

In most deterministic manufacturing decision models, demand is either known or induced by pricing decisions in the period that the demand is experienced. However, in more realistic market scenarios consumers make purchase decisions with respect to price, not only in the current period, but also in past and future periods. We model a joint manufacturing/pricing decision problem, accounting for that portion of demand realized in each period that is induced by the interaction of pricing decisions in the current period and in previous periods. We formulate a mathematical programming model and develop solution techniques. We identify structural properties of our models and develop closed-form solutions and effective heuristics for various special cases of our models. Finally, we conduct extensive computational experiments to quantify the effectiveness of our heuristics, and to develop managerial insights.

Suggested Citation

Ahn, Hyun-Soo and Gumus, Mehmet and Kaminsky, Philip, Pricing and Manufacturing Decisions When Demand is a Function of Prices in Multiple Periods (November 19, 2007). Operations Research, 2007. Available at SSRN: https://ssrn.com/abstract=1712062

Hyun-Soo Ahn

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan St
R5456
Ann Arbor, MI 48109-1234
United States

Mehmet Gumus (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Philip Kaminsky

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR) ( email )

IEOR Department
4135 Etcheverry Hall
Berkeley, CA 94720
United States

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