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Joint dynamic pricing and inventory control policy for a stochastic inventory system with perishable products

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  • Shukai Li
  • Jianxiong Zhang
  • Wansheng Tang

Abstract

This paper considers the joint dynamic pricing and inventory control policy for a stochastic inventory system with perishable products. The inventory system, with random disturbance, is modelled as a continuous-time stochastic differential equation. Combined dynamic pricing and production control, a stochastic dynamic optimisation problem that maximises the total discounted profit is developed. By applying the stochastic optimal control method, we formulate the problem of finding the optimal joint dynamic pricing and production schedule as the problem of solving a Hamilton–Jacobi–Bellman (HJB) equation. It is shown that the optimal dynamic pricing and production rate take the linear feedback form of the inventory level, which allows the decision-maker to effectively adjust the strategies as time evolves. In addition, to highlight the advantage of the joint dynamic pricing and production strategy, the case of the optimal production with static price is considered. Numerical examples are given to illustrate the validness of the theoretical results.

Suggested Citation

  • Shukai Li & Jianxiong Zhang & Wansheng Tang, 2015. "Joint dynamic pricing and inventory control policy for a stochastic inventory system with perishable products," International Journal of Production Research, Taylor & Francis Journals, vol. 53(10), pages 2937-2950, May.
    • Handle: RePEc:taf:tprsxx:v:53:y:2015:i:10:p:2937-2950
    DOI: 10.1080/00207543.2014.961206
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    Citations

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    Cited by:

    1. Chenavaz, Régis, 2016. "Dynamic pricing with reference price dependence," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 10, pages 1-17.
    2. Chenavaz, Régis & Paraschiv, Corina, 2018. "Dynamic pricing for inventories with reference price effects," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-16.
    3. Castellano, Davide & Glock, Christoph H., 2024. "Economic production quantity for a decaying item with stochastic demand and positive lead time," International Journal of Production Economics, Elsevier, vol. 267(C).
    4. Ruishu Shi & Cuilian You, 2023. "Dynamic pricing and production control for perishable products under uncertain environment," Fuzzy Optimization and Decision Making, Springer, vol. 22(3), pages 359-386, September.
    5. Babaee, Sara & Araghi, Mojtaba & Rostami, Borzou, 2022. "Coordinating transportation and pricing policies for perishable products," Transportation Research Part B: Methodological, Elsevier, vol. 164(C), pages 105-125.
    6. Li, Mengmeng & Mizuno, Shinji, 2022. "Comparison of dynamic and static pricing strategies in a dual-channel supply chain with inventory control," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 165(C).
    7. Zhang, Yue & Hu, Xiaojian & Yao, Gang & Xu, Liangcheng, 2024. "Coupon promotion and inventory strategies of a supplier considering an e-commerce platform's omnichannel coupons," Journal of Retailing and Consumer Services, Elsevier, vol. 77(C).
    8. Anton, Ramona & Chenavaz, Régis Y. & Paraschiv, Corina, 2023. "Dynamic pricing, reference price, and price-quality relationship," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    9. Maryam Ghoreishi, 2019. "Testing the robustness of deterministic models of optimal dynamic pricing and lot-sizing for deteriorating items under stochastic conditions," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 27(4), pages 1131-1152, December.
    10. Peter Seele & Claus Dierksmeier & Reto Hofstetter & Mario D. Schultz, 2021. "Mapping the Ethicality of Algorithmic Pricing: A Review of Dynamic and Personalized Pricing," Journal of Business Ethics, Springer, vol. 170(4), pages 697-719, May.
    11. Liu, Hengyu & Zhang, Juliang & Zhou, Chen & Ru, Yihong, 2018. "Optimal purchase and inventory retrieval policies for perishable seasonal agricultural products," Omega, Elsevier, vol. 79(C), pages 133-145.
    12. Rabbani, Masoud & Pourmohammad Zia, Nadia & Rafiei, Hamed, 2016. "Joint optimal dynamic pricing and replenishment policies for items with simultaneous quality and physical quantity deterioration," Applied Mathematics and Computation, Elsevier, vol. 287, pages 149-160.
    13. Assid, M. & Gharbi, A. & Hajji, A., 2020. "Production control of failure-prone manufacturing-remanufacturing systems using mixed dedicated and shared facilities," International Journal of Production Economics, Elsevier, vol. 224(C).
    14. Jie Wei & Wen Wang & Sang-Bing Tsai & Xiaoli Yang, 2018. "To Cooperate or Not? An Analysis of Complementary Product Pricing in Green Supply Chain," Sustainability, MDPI, vol. 10(5), pages 1-21, May.
    15. Zheng, Qi & Zhou, Li & Fan, Tijun & Ieromonachou, Petros, 2019. "Joint procurement and pricing of fresh produce for multiple retailers with a quantity discount contract," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 130(C), pages 16-36.

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