A multi-period ordering and clearance pricing model considering the competition between new and out-of-season products

Xiang Li (), Guohua Sun () and Yongjian Li ()
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Xiang Li: Nankai University
Guohua Sun: Shandong University of Finance and Economics
Yongjian Li: Nankai University

Annals of Operations Research, 2016, vol. 242, issue 2, No 2, 207-221

Abstract: Abstract The joint management of pricing and inventory for perishable products has become an important problem for retailers. This paper investigates a multi-period ordering and clearance pricing model under consideration of the competition between new and out-of-season products. In each period, the ordering quantity of the new product and the clearance price of the out-of-season product are determined as decision variables before the demand is realized, and the unsold new product becomes the out-of-season one of the next period. We establish a finite-horizon Markov decision process model to formulate this problem and analyze its properties. A traditional dynamic program (DP) approach with two-dimensional search is provided. In addition, a myopic policy is derived in which only the profit of the current period is considered. Finally, we apply genetic algorithm (GA) to this problem and design a GA-based heuristic approach, showing by comparison among different algorithms that the GA-based heuristic approach is more performance sound than the myopic policy and much less time consuming than the DP approach.

Keywords: Clearance pricing; Perishable product; Genetic algorithm; Dynamic program (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10479-013-1498-x

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