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Adaptive Ordering and Pricing for Perishable Products

Author

Listed:
  • Apostolos N. Burnetas

    (Department of Operations Research and Operations Management, Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, Ohio 44106)

  • Craig E. Smith

    (Department of Operations Research and Operations Management, Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, Ohio 44106)

Abstract

We consider the combined problem of pricing and ordering for a perishable product with unknown demand distribution and censored demand observations resulting from lost sales, faced by a monopolistic retailer. We develop an adaptive pricing and ordering policy with the asymptotic property that the average realized profit per period converges with probability one to the optimal value under complete information on the distribution. The pricing mechanism is modeled as a multiarmed bandit problem, while the order quantity decision, made after the price level is established, is based on a stochastic approximation procedure with multiplicative updates.

Suggested Citation

  • Apostolos N. Burnetas & Craig E. Smith, 2000. "Adaptive Ordering and Pricing for Perishable Products," Operations Research, INFORMS, vol. 48(3), pages 436-443, June.
    • Handle: RePEc:inm:oropre:v:48:y:2000:i:3:p:436-443
    DOI: 10.1287/opre.48.3.436.12437
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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