Adaptive Ordering and Pricing for Perishable Products

Apostolos N. Burnetas () and Craig E. Smith ()
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Apostolos N. Burnetas: Department of Operations Research and Operations Management, Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, Ohio 44106
Craig E. Smith: Department of Operations Research and Operations Management, Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, Ohio 44106

Operations Research, 2000, vol. 48, issue 3, 436-443

Abstract: We consider the combined problem of pricing and ordering for a perishable product with unknown demand distribution and censored demand observations resulting from lost sales, faced by a monopolistic retailer. We develop an adaptive pricing and ordering policy with the asymptotic property that the average realized profit per period converges with probability one to the optimal value under complete information on the distribution. The pricing mechanism is modeled as a multiarmed bandit problem, while the order quantity decision, made after the price level is established, is based on a stochastic approximation procedure with multiplicative updates.

Keywords: Inventory/production; perishable/aging items: Ordering and pricing under unknown demand; Probability; stochastic models applications: Stochastic approximation (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (41)

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