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Optimal pricing policy for deteriorating items with continuous compounding under price-sensitive demand and shortages

Author

Listed:
  • Mrudul Y. Jani
  • Bhavisha H. Kotak
  • Manish R. Betheja

Abstract

In any business organisation, the customer's demand for product plays an important role to generate maximum revenue. In practice, demand of the product does not always remain constant; it may change with selling price of the product. Therefore, this study considers the price-sensitive demand; where the items deteriorate at constant rate. A surge in demand leads to product unavailability, resulting in shortages. Hence, the exponentially partially backlogged shortages also considered. The principle of continuous compounding is employed to calculate the opportunity cost using compound interest and an annual rate of interest. The main aim is to optimise the retailer's total profit function in terms of cycle time, the time when inventory vanishes, and selling price by using the classical optimisation technique. The optimality of this research is demonstrated using a numerical example and its graphical representation. A sensitivity analysis of the major parameters is performed, and managerial implications are examined.

Suggested Citation

  • Mrudul Y. Jani & Bhavisha H. Kotak & Manish R. Betheja, 2023. "Optimal pricing policy for deteriorating items with continuous compounding under price-sensitive demand and shortages," International Journal of Procurement Management, Inderscience Enterprises Ltd, vol. 18(1), pages 20-43.
    • Handle: RePEc:ids:ijpman:v:18:y:2023:i:1:p:20-43
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