A Polynomial Time Algorithm for a Deterministic Joint Pricing and Inventory Model
26 Pages Posted: 15 Oct 2003
Date Written: 25 2003 9,
In this paper we consider the uncapacitated economic lot-size model, where demand is adeterministic function of price. In the model a single price need to be set for all periods. Theobjective is to find an optimal price and ordering decisions simultaneously. In 1973 Kunreuther and Schrage proposed an heuristic algorithm to solve this problem. The contribution of our paper is twofold. First, we derive an exact algorithm to determine the optimal price and lot-sizing decisions. Moreover, we show that our algorithm boils down to solving a number of lot-sizing problems that is quadratic in the number of periods, i.e., the problem can be solved in polynomial time.
Keywords: production, pricing, lot-sizing, inventory
JEL Classification: M, M11, R4, L11
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