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Coordination of pricing and inventory control across products

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  • Kaijie Zhu
  • Ulrich W. Thonemann

Abstract

We consider the joint pricing and inventory‐control problem for a retailer who orders, stocks, and sells two products. Cross‐price effects exist between the two products, which means that the demand of each product depends on the prices of both products. We derive the optimal pricing and inventory‐control policy and show that this policy differs from the base‐stock list‐price policy, which is optimal for the one‐product problem. We find that the retailer can significantly improve profits by managing the two products jointly as opposed to independently, especially when the cross‐price demand elasticity is high. We also find that the retailer can considerably improve profits by using dynamic pricing as opposed to static pricing, especially when the demand is nonstationary. © 2009 Wiley Periodicals, Inc. Naval Research Logistics, 2009

Suggested Citation

  • Kaijie Zhu & Ulrich W. Thonemann, 2009. "Coordination of pricing and inventory control across products," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(2), pages 175-190, March.
    • Handle: RePEc:wly:navres:v:56:y:2009:i:2:p:175-190
    DOI: 10.1002/nav.20340
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    References listed on IDEAS

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    Cited by:

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    2. Fang, Fei & Nguyen, Tri-Dung & Currie, Christine S.M., 2021. "Joint pricing and inventory decisions for substitutable and perishable products under demand uncertainty," European Journal of Operational Research, Elsevier, vol. 293(2), pages 594-602.
    3. Jalali, Hamed & Carmen, Raïsa & Van Nieuwenhuyse, Inneke & Boute, Robert, 2019. "Quality and pricing decisions in production/inventory systems," European Journal of Operational Research, Elsevier, vol. 272(1), pages 195-206.
    4. Liao Wang & Jin Yao & Xiaowei Zhang, 2022. "How Does Risk Hedging Impact Operations? Insights from a Price-Setting Newsvendor Model," Papers 2201.01026, arXiv.org, revised Jun 2023.
    5. Bhatia, Nishika & Gülpınar, Nalan & Aydın, Nurşen, 2020. "Dynamic production-pricing strategies for multi-generation products under uncertainty," International Journal of Production Economics, Elsevier, vol. 230(C).
    6. Gurkan, M. Edib & Tunc, Huseyin & Tarim, S. Armagan, 2022. "The joint stochastic lot sizing and pricing problem," Omega, Elsevier, vol. 108(C).
    7. Babich, Volodymyr & Birge, John, 2021. "The Interface of Finance, Operations, and Risk Management," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 15(1-2), pages 1-203, June.
    8. Awi Federgruen & Nan Yang, 2011. "TECHNICAL NOTE---Procurement Strategies with Unreliable Suppliers," Operations Research, INFORMS, vol. 59(4), pages 1033-1039, August.

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