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Optimal two-level piecewise-constant price discrimination for a storable perishable product

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  • Avi Herbon

Abstract

Price differentiation over time is an additional policy that firms might consider when determining prices for perishable products. The common policy of a fixed price regardless of freshness might result in leaving some expired inventory unsold. Price differentiation can impact the demand for perishable products, which declines as the expiration date approaches. We develop an optimisation model with the goal of evaluating the monetary effectiveness of the strategy of simultaneously combining price discrimination across heterogeneous consumers with price differentiation over time for perishable inventory under separable multiplicative demand factors of price and time. Necessary optimality equations are derived, and their solutions are proved to constitute a unique global optimal solution. It is proved that an optimal pricing policy is to implement price discrimination with respect to consumers’ sensitivity to freshness, while dynamically changing the price over time, starting with a lower price at the early stages of the product’s shelf life and increasing it at a later stage. The monetary benefit that the retailer and consumer can derive from the suggested pricing policy is evaluated by comparing the model to other models in which price discrimination or dynamic pricing are not implemented. A numerical example that illustrates the significance is introduced. From the analysis of a numerical illustration of the model, it is concluded that a dynamic price discrimination policy can be approximated by an identical-to-all dynamic pricing policy in order to maximise the retailer’s profit and thus, mitigate the retailer’s risk from failing in the process of implementing price discrimination.

Suggested Citation

  • Avi Herbon, 2018. "Optimal two-level piecewise-constant price discrimination for a storable perishable product," International Journal of Production Research, Taylor & Francis Journals, vol. 56(5), pages 1738-1756, March.
  • Handle: RePEc:taf:tprsxx:v:56:y:2018:i:5:p:1738-1756
    DOI: 10.1080/00207543.2015.1018451
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    Cited by:

    1. 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.
    2. Wan, Qin & Yang, Shilei & Shi, Victor & Qiu, Martin, 2021. "Optimal strategies of mobile targeting promotion under competition," International Journal of Production Economics, Elsevier, vol. 237(C).
    3. Du, Heng & Lu, Ke, 2023. "Visualization service investment strategies for a self-operated fresh agricultural product e-tailer," Journal of Retailing and Consumer Services, Elsevier, vol. 75(C).
    4. Sadia Samar Ali & Haripriya Barman & Rajbir Kaur & Hana Tomaskova & Sankar Kumar Roy, 2021. "Multi-Product Multi Echelon Measurements of Perishable Supply Chain: Fuzzy Non-Linear Programming Approach," Mathematics, MDPI, vol. 9(17), pages 1-27, August.

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