Joint Inventory and Pricing Decisions for an Assortment

Goker Aydin () and Evan L. Porteus ()
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Goker Aydin: Department of Industrial and Operations Engineering, The University of Michigan, Ann Arbor, Michigan 48109
Evan L. Porteus: Graduate School of Business, Stanford University, Stanford, California 94305

Operations Research, 2008, vol. 56, issue 5, 1247-1255

Abstract: We seek optimal inventory levels and prices of multiple products in a given assortment in a newsvendor model (single period, stochastic demand) under price-based substitution, but not stockout-based substitution. We address a demand model involving multiplicative uncertainty, motivated by market share models often used in marketing. The pricing problem that arises is known not to be well behaved in the sense that, in its deterministic version, the objective function is not jointly quasi-concave in prices. However, we find that the objective function is still reasonably well behaved in the sense that there is a unique solution to the first-order conditions, and this solution is optimal for our problem.

Keywords: inventory/production; multi-item; pricing; stochastic; marketing; choice models; pricing; retailing; wholesaling (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (52)

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