Dynamic Pricing and Inventory Control for Multiple Products

Journal of Revenue & Pricing Management 3, 303-319 (January 2005)

20 Pages Posted: 1 Mar 2014 Last revised: 3 Mar 2014

See all articles by Dimitris Bertsimas

Dimitris Bertsimas

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Sanne De Boer

Voya Investment Management

Date Written: 2005

Abstract

A periodical multi-product pricing and inventory control problem with applications to production planning and airline revenue management is studied. The objective function of the single-period model is shown to be convex for certain types of demand distributions, thus tractable for large instances. A heuristic is proposed to solve the more complex multi-period problem, which is an interesting combination of linear and dynamic programming. Numerical experiments and theoretical bounds on the optimal expected revenue suggest that the extent to which a dynamic policy based on a stochastic model will outperform a simple static policy based on a deterministic model depends on the level of demand variability as measured by the coefficient of variation.

Keywords: dynamic pricing, inventory control, multiple products, joint pricing, inventory control

JEL Classification: C61, D40, D45,

Suggested Citation

Bertsimas, Dimitris and De Boer, Sanne, Dynamic Pricing and Inventory Control for Multiple Products (2005). Journal of Revenue & Pricing Management 3, 303-319 (January 2005), Available at SSRN: https://ssrn.com/abstract=2402531

Dimitris Bertsimas

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E53-359
Cambridge, MA 02142
United States
617-253-4223 (Phone)
617-258-7579 (Fax)

Sanne De Boer (Contact Author)

Voya Investment Management ( email )

230 Park Avenue
13th Floor
New York, NY 10069
United States

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