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Joint pricing and inventory decision under a probabilistic selling strategy

Author

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  • Yifan Wu

    (East China University of Science and Technology)

  • Shibo Jin

    (East China University of Science and Technology)

Abstract

This study examines whether probabilistic selling could enhance inventory management considering market size uncertainty in a rather general setting. We propose to study the impact of probabilistic selling on the profit, price and order quantity within a newsvendor framework. By comparing probabilistic selling against traditional selling, we find that probabilistic selling could generally increase firm’s expected profit. Moreover, the firm will increase the price and the order quantity for the component product. The impact of various aspects, i.e. the demand variance, the unit cost and the degree of cannibalization, on the pricing and order decisions are investigated through numerical experiments.

Suggested Citation

  • Yifan Wu & Shibo Jin, 2022. "Joint pricing and inventory decision under a probabilistic selling strategy," Operational Research, Springer, vol. 22(2), pages 1209-1233, April.
    • Handle: RePEc:spr:operea:v:22:y:2022:i:2:d:10.1007_s12351-020-00599-x
    DOI: 10.1007/s12351-020-00599-x
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    References listed on IDEAS

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    Cited by:

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    2. Shunlin Wang & Yifang Chen, 2022. "Consumption Coupons, Consumption Probability and Inventory Optimization: An Improved Minimum-Cost Maximum-Flow Approach," Sustainability, MDPI, vol. 14(13), pages 1-14, June.

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