Coordination of pricing and inventory control across products |
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| Authors: | Kaijie Zhu Ulrich W. Thonemann |
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| Affiliation: | 1. Department of Industrial Engineering and Logistics Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong;2. Department of Supply Chain Management and Management Science, University of Cologne, 50923 Cologne, Germany |
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| Abstract: | We consider the joint pricing and inventory‐control problem for a retailer who orders, stocks, and sells two products. Cross‐price effects exist between the two products, which means that the demand of each product depends on the prices of both products. We derive the optimal pricing and inventory‐control policy and show that this policy differs from the base‐stock list‐price policy, which is optimal for the one‐product problem. We find that the retailer can significantly improve profits by managing the two products jointly as opposed to independently, especially when the cross‐price demand elasticity is high. We also find that the retailer can considerably improve profits by using dynamic pricing as opposed to static pricing, especially when the demand is nonstationary. © 2009 Wiley Periodicals, Inc. Naval Research Logistics, 2009 |
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| Keywords: | pricing inventory control dynamic programming |
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