A nonlinear continuous time optimal control model of dynamic pricing and inventory control with no backorders

Elodie Adida and Georgia Perakis

Naval Research Logistics (NRL), 2007, vol. 54, issue 7, 767-795

Abstract: In this paper, we present a continuous time optimal control model for studying a dynamic pricing and inventory control problem for a make‐to‐stock manufacturing system. We consider a multiproduct capacitated, dynamic setting. We introduce a demand‐based model where the demand is a linear function of the price, the inventory cost is linear, the production cost is an increasing strictly convex function of the production rate, and all coefficients are time‐dependent. A key part of the model is that no backorders are allowed. We introduce and study an algorithm that computes the optimal production and pricing policy as a function of the time on a finite time horizon, and discuss some insights. Our results illustrate the role of capacity and the effects of the dynamic nature of demand in the model. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:54:y:2007:i:7:p:767-795

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