Dynamic pricing in a dual‐market environment |
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| Authors: | Wen Chen Adam J Fleischhacker Michael N Katehakis |
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| Affiliation: | 1. Providence Business School, Providence College, Providence, Rhode Islands;2. Department of Business Administration, University of Delaware, Newark, Delaware;3. Department of Management Science and Information Systems, Rutgers University, New Brunswick, New Jersey |
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| Abstract: | This article is concerned with the determination of pricing strategies for a firm that in each period of a finite horizon receives replenishment quantities of a single product which it sells in two markets, for example, a long‐distance market and an on‐site market. The key difference between the two markets is that the long‐distance market provides for a one period delay in demand fulfillment. In contrast, on‐site orders must be filled immediately as the customer is at the physical on‐site location. We model the demands in consecutive periods as independent random variables and their distributions depend on the item's price in accordance with two general stochastic demand functions: additive or multiplicative. The firm uses a single pool of inventory to fulfill demands from both markets. We investigate properties of the structure of the dynamic pricing strategy that maximizes the total expected discounted profit over the finite time horizon, under fixed or controlled replenishment conditions. Further, we provide conditions under which one market may be the preferred outlet to sale over the other. © 2015 Wiley Periodicals, Inc. Naval Research Logistics 62: 531–549, 2015 |
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| Keywords: | inventory pricing dynamic programming |
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