A Polynomial Time Algorithm for a Deterministic Joint Pricing and Inventory Model

26 Pages Posted: 15 Oct 2003

See all articles by Wilco van den Heuvel

Wilco van den Heuvel

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Albert P. M. Wagelmans

Erasmus University Rotterdam (EUR) - Erasmus Center for Optimization in Public Transport (ECOPT); Erasmus University Rotterdam (EUR) - Department of Econometrics

Date Written: 25 2003 9,

Abstract

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

Suggested Citation

van den Heuvel, Wilco and Wagelmans, Albert P. M., A Polynomial Time Algorithm for a Deterministic Joint Pricing and Inventory Model (25 2003 9,). ERIM Report Series Reference No. ERS-2003-065-LIS. Available at SSRN: https://ssrn.com/abstract=450997

Wilco Van den Heuvel (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 40 81307 (Phone)

Albert P. M. Wagelmans

Erasmus University Rotterdam (EUR) - Erasmus Center for Optimization in Public Transport (ECOPT) ( email )

3000 DR Rotterdam
Netherlands
+31 10 408 2576 (Phone)
+31 10 408 9162 (Fax)

Erasmus University Rotterdam (EUR) - Department of Econometrics

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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