PRICING AND INVENTORY DECISIONS WITH UNCERTAIN SUPPLY AND STOCHASTIC DEMAND

Chirag Surti (), Elkafi Hassini () and Prakash Abad ()
Additional contact information
Chirag Surti: Faculty of Business and IT, University of Ontario Institute of Technology (UOIT), 2000 Simcoe Street North, Oshawa, Ontario, Canada L1H 7K4, Canada
Elkafi Hassini: DeGroote School of Business, McMaster University, 1280 Main Street West, Hamilton, Ontario, Canada L8S 4L8, Canada
Prakash Abad: DeGroote School of Business, McMaster University, 1280 Main Street West, Hamilton, Ontario, Canada L8S 4L8, Canada

Asia-Pacific Journal of Operational Research (APJOR), 2013, vol. 30, issue 06, 1-25

Abstract: We consider a retailer, facing uncertain supply and price-sensitive stochastic demand, who has to make stocking and pricing decisions for a given selling period. We also consider the case when the demand is price-sensitive deterministic and provide a unified framework for the model with additive errors. For both scenarios, we look at the case when the price is set before receiving the supply, called simultaneous pricing and the case when the price is set after receiving it, which is called postponed pricing. We develop a procedure for finding the optimal policy for the retailer with general distributions for the supply and the demand. To study the effect of supply uncertainty on expected profit, we conduct sensitivity analysis and develop results for both pricing scenarios and give insights. The results have important implications for a retailer in the supply chain, where a portion of the inventory may be lost due to variety of factors including mishandling and failure to meet quality standards. The findings shed light on the nature and role of prices and their relationship to supply and demand.

Keywords: Pricing; inventory; random yield; demand uncertainty (search for similar items in EconPapers)
Date: 2013
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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DOI: 10.1142/S0217595913500309

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