Joint Pricing and Inventory Control with Fixed and Convex/Concave Variable Production Costs

Peng Hu, Ye Lu, Miao Song

Research output: Journal article publicationJournal articleAcademic researchpeer-review

2 Citations (Scopus)

Abstract

This study considers a periodic-review joint pricing and inventory control problem for a single product, where production incurs a fixed cost plus a convex or concave variable cost. Our objective is to maximize the expected discounted profit over the entire planning horizon. We fully characterize the optimal policy for the single-period problem. As the optimal policy for the multi-period problem is too complicated to be implemented in practice, we develop well-structured heuristic policies, and establish worst-case performance bounds on the profit gap between the heuristic policies and the optimal policies. Numerical studies show that our heuristic policies perform extremely well. To further reveal the structural properties of the optimal policies, we also introduce two new concepts named κ-convexity and sym-κ-convexity, provide the associated preservation results, and then characterize the optimal policies.

Original languageEnglish
Pages (from-to)847-877
Number of pages31
JournalProduction and Operations Management
Volume28
Issue number4
DOIs
Publication statusPublished - Apr 2019

Keywords

  • dynamic programming
  • inventory control
  • pricing decision
  • sym-κ-convexity
  • κ-convexity

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

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