Optimal dynamic pricing and ordering decisions for perishable products

Ek Peng Chew, Chul Ung Lee, Rujing Liu, Ki Sung Hong, Anming Zhang

Research output: Contribution to journalArticle

32 Citations (Scopus)

Abstract

In this paper, we determine the order quantity and the prices for a perishable product with a multiple period lifetime. Demands for products of different ages are dependent on the prices of mutually "substitutable" products. The problem for a product with lifetime of two periods is first analyzed and the stochastic dynamic programming model is developed. Given the inventory level for the old product (product of age 2), the expected profit is a concave function of the order quantity, the price of the new product (product of age 1) and the discounted price of the old product (product of age 2). The computational results show that the total profit significantly increases when demand transfers between products of different ages are considered. For a product with lifetime of longer than two periods, a heuristic based on the optimal solution for a single period problem is proposed for a multiple period problem.

Original languageEnglish
Pages (from-to)39-48
Number of pages10
JournalInternational Journal of Production Economics
Volume157
Issue number1
DOIs
Publication statusPublished - 2014

Fingerprint

Profitability
Dynamic programming
Costs
Perishable products
Dynamic pricing
Order quantity
Profit

Keywords

  • Demand transfer
  • Dynamic pricing
  • Inventory
  • Perishable product

ASJC Scopus subject areas

  • Industrial and Manufacturing Engineering
  • Business, Management and Accounting(all)
  • Management Science and Operations Research
  • Economics and Econometrics

Cite this

Optimal dynamic pricing and ordering decisions for perishable products. / Chew, Ek Peng; Lee, Chul Ung; Liu, Rujing; Hong, Ki Sung; Zhang, Anming.

In: International Journal of Production Economics, Vol. 157, No. 1, 2014, p. 39-48.

Research output: Contribution to journalArticle

Chew, Ek Peng ; Lee, Chul Ung ; Liu, Rujing ; Hong, Ki Sung ; Zhang, Anming. / Optimal dynamic pricing and ordering decisions for perishable products. In: International Journal of Production Economics. 2014 ; Vol. 157, No. 1. pp. 39-48.
@article{c3debd76a0824823a5e739dc350e4655,
title = "Optimal dynamic pricing and ordering decisions for perishable products",
abstract = "In this paper, we determine the order quantity and the prices for a perishable product with a multiple period lifetime. Demands for products of different ages are dependent on the prices of mutually {"}substitutable{"} products. The problem for a product with lifetime of two periods is first analyzed and the stochastic dynamic programming model is developed. Given the inventory level for the old product (product of age 2), the expected profit is a concave function of the order quantity, the price of the new product (product of age 1) and the discounted price of the old product (product of age 2). The computational results show that the total profit significantly increases when demand transfers between products of different ages are considered. For a product with lifetime of longer than two periods, a heuristic based on the optimal solution for a single period problem is proposed for a multiple period problem.",
keywords = "Demand transfer, Dynamic pricing, Inventory, Perishable product",
author = "Chew, {Ek Peng} and Lee, {Chul Ung} and Rujing Liu and Hong, {Ki Sung} and Anming Zhang",
year = "2014",
doi = "10.1016/j.ijpe.2013.12.022",
language = "English",
volume = "157",
pages = "39--48",
journal = "International Journal of Production Economics",
issn = "0925-5273",
publisher = "Elsevier",
number = "1",

}

TY - JOUR

T1 - Optimal dynamic pricing and ordering decisions for perishable products

AU - Chew, Ek Peng

AU - Lee, Chul Ung

AU - Liu, Rujing

AU - Hong, Ki Sung

AU - Zhang, Anming

PY - 2014

Y1 - 2014

N2 - In this paper, we determine the order quantity and the prices for a perishable product with a multiple period lifetime. Demands for products of different ages are dependent on the prices of mutually "substitutable" products. The problem for a product with lifetime of two periods is first analyzed and the stochastic dynamic programming model is developed. Given the inventory level for the old product (product of age 2), the expected profit is a concave function of the order quantity, the price of the new product (product of age 1) and the discounted price of the old product (product of age 2). The computational results show that the total profit significantly increases when demand transfers between products of different ages are considered. For a product with lifetime of longer than two periods, a heuristic based on the optimal solution for a single period problem is proposed for a multiple period problem.

AB - In this paper, we determine the order quantity and the prices for a perishable product with a multiple period lifetime. Demands for products of different ages are dependent on the prices of mutually "substitutable" products. The problem for a product with lifetime of two periods is first analyzed and the stochastic dynamic programming model is developed. Given the inventory level for the old product (product of age 2), the expected profit is a concave function of the order quantity, the price of the new product (product of age 1) and the discounted price of the old product (product of age 2). The computational results show that the total profit significantly increases when demand transfers between products of different ages are considered. For a product with lifetime of longer than two periods, a heuristic based on the optimal solution for a single period problem is proposed for a multiple period problem.

KW - Demand transfer

KW - Dynamic pricing

KW - Inventory

KW - Perishable product

UR - http://www.scopus.com/inward/record.url?scp=84922669181&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84922669181&partnerID=8YFLogxK

U2 - 10.1016/j.ijpe.2013.12.022

DO - 10.1016/j.ijpe.2013.12.022

M3 - Article

AN - SCOPUS:84922669181

VL - 157

SP - 39

EP - 48

JO - International Journal of Production Economics

JF - International Journal of Production Economics

SN - 0925-5273

IS - 1

ER -