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Optimal Pricing and Return Policies for Perishable Commodities

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  • Barry Alan Pasternack

    (College of Business and Economics, California State University, Fullerton, California)

Abstract

This paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life. A hierarchical model is developed, and the results of the single period inventory model are used to examine possible pricing and return policies. The paper shows that several such policies currently in effect are suboptimal. These include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted. The paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination, but that the optimal return allowance will be a function of retailer demand. Therefore, such a policy cannot be optimal in a multi-retailer environment. It is proven, however, that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi-retailer environment. This article was originally published in , Volume 4, Issue 2, pages 166–176, in 1985.

Suggested Citation

  • Barry Alan Pasternack, 2008. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 27(1), pages 133-140, 01-02.
    • Handle: RePEc:inm:ormksc:v:27:y:2008:i:1:p:133-140
    DOI: 10.1287/mksc.1070.0336
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    References listed on IDEAS

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