IDEAS home Printed from https://ideas.repec.org/a/wly/navres/v57y2010i2p119-126.html
   My bibliography  Save this article

A note on “resource flexibility with responsive pricing”

Author

Listed:
  • Ebru K. Bish
  • Juqi Liu
  • Douglas R. Bish

Abstract

We revisit the capacity investment decision problem studied in the article “Resource Flexibility with Responsive Pricing” by Chod and Rudi [Operations Research 53, (2005) 532–548]. A monopolist firm producing two dependent (substitutable or complementary) products needs to determine the capacity of one flexible resource under demand risk so as to maximize its expected profit. Product demands are linear functions of the prices of both products, and the market potentials are random and correlated. We perform a comparative statics analysis on how demand variability and correlation impact the optimal capacity and the resulting expected profit. In particular, C&R study this problem under the following assumptions/approximations: (i) demand intercepts follow a bivariate Normal distribution; (ii) demand uncertainty is of an additive form; (iii) and under approximate expressions for the optimal capacity and optimal expected profit. We revisit Propositions 2, 3, 4, 5, and 10 of C&R without these assumptions and approximations, and show that these results continue to hold (i) for the exact expressions for the optimal expected profit and optimal capacity, and (ii) under any arbitrary continuous distribution of demand intercepts. However, we also show that the additive demand uncertainty is a critical assumption for the C&R results to hold. In particular, we provide a case of multiplicative uncertainty under which the C&R results (Propositions 2 and 3) fail. © 2010 Wiley Periodicals, Inc. Naval Research Logistics 2010

Suggested Citation

  • Ebru K. Bish & Juqi Liu & Douglas R. Bish, 2010. "A note on “resource flexibility with responsive pricing”," Naval Research Logistics (NRL), John Wiley & Sons, vol. 57(2), pages 119-126, March.
    • Handle: RePEc:wly:navres:v:57:y:2010:i:2:p:119-126
    DOI: 10.1002/nav.20389
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/nav.20389
    Download Restriction: no
    File URL: https://libkey.io/10.1002/nav.20389?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Marco Scarsini, 1998. "Multivariate convex orderings, dependence, and stochastic equality," Post-Print hal-00541775, HAL.
    2. Jiri Chod & Nils Rudi, 2005. "Resource Flexibility with Responsive Pricing," Operations Research, INFORMS, vol. 53(3), pages 532-548, June.
    3. Nicholas C. Petruzzi & Maqbool Dada, 1999. "Pricing and the Newsvendor Problem: A Review with Extensions," Operations Research, INFORMS, vol. 47(2), pages 183-194, April.
    4. Simon GB Cowan & Simon Cowan, 2004. "Demand shifts and imperfect competition," Economics Series Working Papers 188, University of Oxford, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ravi Anupindi & Li Jiang, 2008. "Capacity Investment Under Postponement Strategies, Market Competition, and Demand Uncertainty," Management Science, INFORMS, vol. 54(11), pages 1876-1890, November.
    2. Jiang, Li, 2012. "The implications of postponement on contract design and channel performance," European Journal of Operational Research, Elsevier, vol. 216(2), pages 356-366.
    3. Wang, Yao-Yu & Wang, Jian-Cai & Shou, Biying, 2013. "Pricing and effort investment for a newsvendor-type product," European Journal of Operational Research, Elsevier, vol. 229(2), pages 422-432.
    4. Özelkan, Ertunga C. & ÇakanyIldIrIm, Metin, 2009. "Reverse bullwhip effect in pricing," European Journal of Operational Research, Elsevier, vol. 192(1), pages 302-312, January.
    5. Yuyue Song & Saibal Ray & Shanling Li, 2008. "Structural Properties of Buyback Contracts for Price-Setting Newsvendors," Manufacturing & Service Operations Management, INFORMS, vol. 10(1), pages 1-18, November.
    6. Xing, Wei & Wang, Shouyang & Liu, Liming, 2012. "Optimal ordering and pricing strategies in the presence of a B2B spot market," European Journal of Operational Research, Elsevier, vol. 221(1), pages 87-98.
    7. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    8. Lingxiu Dong & Guang Xiao & Nan Yang, 2023. "Supply diversification under random yield: The impact of price postponement," Production and Operations Management, Production and Operations Management Society, vol. 32(4), pages 1112-1132, April.
    9. Geoffrey A. Chua & Yan Liu, 2019. "Sensitivity analysis on responsive pricing and production under imperfect demand updating," Naval Research Logistics (NRL), John Wiley & Sons, vol. 66(7), pages 529-546, October.
    10. Ertunga Özelkan & Churlzu Lim, 2008. "Conditions of reverse bullwhip effect in pricing for price-sensitive demand functions," Annals of Operations Research, Springer, vol. 164(1), pages 211-227, November.
    11. Dongling Cai & Li Jiang, 2020. "The Bright and Dark Sides of Customer Switching," Production and Operations Management, Production and Operations Management Society, vol. 29(6), pages 1381-1396, June.
    12. Panos Kouvelis & Guang Xiao & Nan Yang, 2021. "Role of Risk Aversion in Price Postponement Under Supply Random Yield," Management Science, INFORMS, vol. 67(8), pages 4826-4844, August.
    13. Brian Tomlin & Yimin Wang, 2008. "Pricing and Operational Recourse in Coproduction Systems," Management Science, INFORMS, vol. 54(3), pages 522-537, March.
    14. Yang, Yang & Liu, Jie, 2023. "Price timing and financing strategies for a capital-constrained supply chain with price-dependent stochastic demand," International Journal of Production Economics, Elsevier, vol. 261(C).
    15. Bish, Ebru K. & Suwandechochai, Rawee, 2010. "Optimal capacity for substitutable products under operational postponement," European Journal of Operational Research, Elsevier, vol. 207(2), pages 775-783, December.
    16. Tang, Christopher S. & Yin, Rui, 2007. "Responsive pricing under supply uncertainty," European Journal of Operational Research, Elsevier, vol. 182(1), pages 239-255, October.
    17. Özelkan, Ertunga C. & Lim, Churlzu & Adnan, Ziaul Haq, 2018. "Conditions of reverse bullwhip effect in pricing under joint decision of replenishment and pricing," International Journal of Production Economics, Elsevier, vol. 200(C), pages 207-223.
    18. Mahesh Nagarajan & Greys Soši'{c}, 2007. "Stable Farsighted Coalitions in Competitive Markets," Management Science, INFORMS, vol. 53(1), pages 29-45, January.
    19. Guang Xiao & Nan Yang & Renyu Zhang, 2015. "Dynamic Pricing and Inventory Management Under Fluctuating Procurement Costs," Manufacturing & Service Operations Management, INFORMS, vol. 17(3), pages 321-334, July.
    20. V. Padmanabhan & Ilia Tsetlin & Timothy Zandt, 2010. "Setting price or quantity: Depends on what the seller is more uncertain about," Quantitative Marketing and Economics (QME), Springer, vol. 8(1), pages 35-60, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:navres:v:57:y:2010:i:2:p:119-126. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1520-6750 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.