TY - JOUR

T1 - A production-inventory problem with price-sensitive demand

AU - Singer, Gonen

AU - Khmelnitsky, Eugene

N1 - Publisher Copyright:
© 2020

PY - 2021/1

Y1 - 2021/1

N2 - This paper deals with the problem of setting an optimal price for a product. The product is priced by maximizing the objective function, which accounts for both income from sales and operational costs. Since the price-sensitive demand is the common factor that determines the two components of the objective, it is used as an independent decision variable. We develop a closed-form solution for the discounted infinite-horizon variety of the problem. For a finite horizon, we suggest an approximate numerical procedure that sets the price dynamically as the horizon-length decreases, such as may occur, for example, towards the end of the sales period. When modeling the operational cost component, we consider a stochastic production-inventory problem and solve it using optimal control methods. In particular, we show that the optimal production policy is of a threshold type and we calculate the threshold value.

AB - This paper deals with the problem of setting an optimal price for a product. The product is priced by maximizing the objective function, which accounts for both income from sales and operational costs. Since the price-sensitive demand is the common factor that determines the two components of the objective, it is used as an independent decision variable. We develop a closed-form solution for the discounted infinite-horizon variety of the problem. For a finite horizon, we suggest an approximate numerical procedure that sets the price dynamically as the horizon-length decreases, such as may occur, for example, towards the end of the sales period. When modeling the operational cost component, we consider a stochastic production-inventory problem and solve it using optimal control methods. In particular, we show that the optimal production policy is of a threshold type and we calculate the threshold value.

KW - Optimal control

KW - Pricing policy

KW - Threshold policy

KW - Wiener process

UR - http://www.scopus.com/inward/record.url?scp=85089693951&partnerID=8YFLogxK

U2 - 10.1016/j.apm.2020.06.072

DO - 10.1016/j.apm.2020.06.072

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AN - SCOPUS:85089693951

SN - 0307-904X

VL - 89

SP - 688

EP - 699

JO - Applied Mathematical Modelling

JF - Applied Mathematical Modelling

ER -