Pricing and Manufacturing Decisions When Demand is a Function of Prices in Multiple Periods
Operations Research, 2007
62 Pages Posted: 21 Nov 2010
Date Written: November 19, 2007
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.
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