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Dynamic pricing and ordering decisions by a monopolist

Rajan, Rakesh A. and Steinberg, Richard (1992) Dynamic pricing and ordering decisions by a monopolist. Management Science, 38 (2). pp. 240-262. ISSN 0025-1909

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Abstract

This paper considers the relationship between pricing and ordering decisions for a monopolistic retailer facing a known demand function where, over the inventory cycle, the product may exhibit: (i) physical decay or deterioration of inventory called wastage; and (ii) decrease in market value called value drop associated with each unit of inventory on hand. The retailer is allowed to continuously vary the selling price of the product over the cycle. We introduce a notion of instantaneous margin, and use it to derive profit maximizing conditions for the retailer. The model explains the markdown of retail goods subject to decay. It also provides guidance in determining when price changes during the cycle are worthwhile due to product aging, how often such changes should be made, and how such changes affect ordering intervals and quantities.

Item Type: Article
Official URL: http://www.informs.org/site/ManSci/
Additional Information: © 1992 INFORMS
Library of Congress subject classification: H Social Sciences > HF Commerce
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Management Science Group
Departments > Management
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 07 Apr 2009 16:07
URL: http://eprints.lse.ac.uk/23582/

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