Optimal production and selling policies with fixed-price contracts and contingent-price offers

Cheng-Yuan Ku and Yi-Wen Chang

International Journal of Production Economics, 2012, vol. 137, issue 1, 94-101

Abstract: This paper investigates optimal production and selling decisions for a single supplier with two types of customers. Specifically, risk-averse buyers would rather pay higher fixed prices with guaranteed supply contracts whereas risk-prone buyers prefer to secure remaining stocks and pay lower contingent prices. This study formulized this problem with a dynamic programming model and analyzed it further using successive approximations. Theoretical results indicate that no controls are needed for fixed-price orders. However, thresholds exist for manufacturing and contingent-price ordering policies. These two types of threshold planes increased with the addition of waiting customers. Furthermore, a sensitivity analysis of seasonal factors revealed that the optimal threshold plane shifts upward during high demand periods.

Keywords: Contingent prices; Manufacturing and selling decisions; Optimal policy; Dynamic programming; Sensitivity analysis (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:137:y:2012:i:1:p:94-101

DOI: 10.1016/j.ijpe.2012.01.019

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