Temporary Price Changes During Replenishment Leadtime

Posted: 25 Sep 2014 Last revised: 13 May 2015

See all articles by Nagihan Çömez-Dolgan

Nagihan Çömez-Dolgan

Istanbul Sehir University; American University of Beirut

Lama Moussawi

American University of Beirut - Olayan School of Business

Burcu Esmer

University of Pennsylvania - The Wharton School

Date Written: August 1, 2014

Abstract

Dynamic pricing may lead to better supply-demand match by approaching from the demand side in a price dependent market. When the inventory is scarce, a price change hedges for more effective use of available inventory. We study a temporary price change policy for a non-perishable product that is continuously reviewed for replenishment. While a regular competitive market price is charged under reasonable inventory levels, during the leadtime of a replenishment order, the firm may apply a temporary price increase. The aim is to increase expected profits by raising revenues from available units, while lowering the demand rate to incur lower stock-out costs for unsatisfied demand. Our interest is to gain insight about the benefits of such a temporary pricing policy and its effects on regular replenishment policy by simultaneously optimizing for regular replenishment and price change decision variables. Through extensive numerical analyses, we show that significant increases in expected profits can be obtained over a conventional single price policy. Significant improvements in profits are attainable even with more simplified policies where a sequential optimization of replenishment and price change is made instead of a computationally challenging simultaneous optimization.

Keywords: pricing, continuous review, lost sales, inventory control, emergency control

Suggested Citation

Comez-Dolgan, Nagihan and Moussawi, Lama and Esmer, Burcu, Temporary Price Changes During Replenishment Leadtime (August 1, 2014). Available at SSRN: https://ssrn.com/abstract=2501319

Nagihan Comez-Dolgan (Contact Author)

Istanbul Sehir University ( email )

Istanbul, Istanbul 34662
Turkey

American University of Beirut ( email )

Beirut, 0236
Lebanon

Lama Moussawi

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon

Burcu Esmer

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

HOME PAGE: http://https://fnce.wharton.upenn.edu/profile/_whrtn78/

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