Markets With Memory: Dynamic Channel Optimization Models With Price-Dependent Stochastic Demand

44 Pages Posted: 10 Sep 2019

See all articles by Reza Azad Gholami

Reza Azad Gholami

Norwegian School of Economics (NHH) - Department of Business and Management Science

Leif Kristoffer Sandal

Norwegian School of Economics (NHH) - Department of Business and Management Science

Jan Uboe

Norwegian School of Economics (NHH) - Department of Business and Management Science

Date Written: January 2019

Abstract

Almost every vendor faces uncertain and time-varying demand. Inventory level and price optimization while catering to stochastic demand are conventionally formulated as variants of newsvendor problem. Despite its ubiquity in potential applications, the time-dependent (multi-period) newsvendor problem in its general form has received limited attention in the literature due to its complexity and the highly nested structure of its ensuing optimization problems. The complexity level rises even more when there are more than one decision maker in a supply channel, trying to reach an equilibrium. The purpose of this paper is to construct an explicit and e cient solution procedure for multi-period price-setting newsvendor problems in a Stackelberg framework. In particular, we show that our recursive solution algorithm can be applied to standard contracts such as buy back contracts, revenue sharing contracts, and their generalizations.

Keywords: Stochastic Demand, Time-Dependent Demand, Price-Dependent Demand, Memory Functions, Market Engineering, Demand Manipulation, Prescriptive Analytics, Pricing Theory

JEL Classification: C61, C73, D81, D47

Suggested Citation

Azad Gholami, Reza and Sandal, Leif Kristoffer and Uboe, Jan, Markets With Memory: Dynamic Channel Optimization Models With Price-Dependent Stochastic Demand (January 2019). NHH Dept. of Business and Management Science Discussion Paper No. 2019/8. Available at SSRN: https://ssrn.com/abstract=3450493 or http://dx.doi.org/10.2139/ssrn.3450493

Reza Azad Gholami (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Leif Kristoffer Sandal

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 55 95 93 41 (Phone)

Jan Uboe

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

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