Browse > Article

Optimal Lot-sizing and Pricing with Markdown for a Newsvendor Problem  

Chen, Jen-Ming (Institute of Industrial Management National Central University)
Chen, Yi-Shen (Institute of Industrial Management National Central University)
Chien, Mei-Chen (Department of Industrial and Technology Management Vanung University)
Publication Information
Industrial Engineering and Management Systems / v.7, no.3, 2008 , pp. 257-265 More about this Journal
Abstract
This paper deals with the joint decisions on pricing and ordering for a monopolistic retailer who sells perishable goods with a fixed lifetime or demand period. The newsvendor-typed problem is formulated as a two-period inventory system where the first period represents the inventory of fresh or new-arrival items and the second period represents the inventory of items that are older but still usable. Demand may be for either fresh items or for somewhat older items that exhibit physical decay or deterioration. The retailer is allowed to adjust the selling price of the deteriorated items in the second period, which stimulates demand and reduces excess season-end or stale inventory. This paper develops a stochastic dynamic programming model that solves the problem of preseason decisions on ordering-pricing and a within-season decision on markdown pricing. We also develop a fixed-price model as a benchmark against the dual-price dynamic model. To illustrate the effect of the dual-price policy on expected profit, we conduct a comparative study between the two models. Extension to a generalized multi-period model is also discussed.
Keywords
Inventory; Perishable; Pricing-Ordering; Dynamic Pricing;
Citations & Related Records
연도 인용수 순위
  • Reference
1 Burnetas, A. N. and Smith, C. E. (2000), Adaptive ordering and pricing for perishable products, Operations Research, 48(3), 436-443.   DOI   ScienceOn
2 Deng, S. and Yano, C. A. (2006), Joint production and pricing decisions with setup costs and capacity constraints, Management Science, 52(5), 741-756.   DOI   ScienceOn
3 Feldman, J. M. (1990), Fares: to raise or not to raise, Air Transportation World, 27(6), 58-59.
4 Feng, Y. and Gallego, G. (2000), Perishable asset revenue management with Markovian time dependent demand intensities, Management Science, 46(7), 941-956.   DOI   ScienceOn
5 Nahmias, S. (1982), Perishable inventory theory: a review, Operations Research, 30(4), 680-708.   DOI   ScienceOn
6 Pashigian, B. P. and Bowen, B. (1991), Why are products sold on sale?, explanations of pricing regularities, The Quarterly Journal of Economics, 106, 1015- 1038.   DOI   ScienceOn
7 Van Ryzin, G. and McGill, J. (2000), Revenue management without forecasting or optimization: an adaptive algorithm for determining airline seat protection levels, Management Science, 46(6), 760-775.   DOI   ScienceOn
8 Lee, H. L., Padmanabhan, V., Taylor, T. A., and Whang, S. (2000), Price protection in the personal computer industry, Management Science, 46(4), 467-482.   DOI   ScienceOn
9 Eliashberg, J. and Steinberg, R. (1993), Marketing-production joint decision-making, in Handbooks in Operations Research and Management Science, Marketing, 5, J. Eliashberg and G. L. Lillien (eds.), Elsevier Science Publishers B. V.
10 Brynjolfsson, E. and Smith, M. D. (2000), Frictionless commerce? A comparison of internet and conventional retailers, Management Science, 46(4), 563-585.   DOI   ScienceOn
11 Petruzzi, N. C. and Dada, M. (1999), Pricing and the newsvendor problem: a review with extensions, Operations Research, 47(2), 183-194.   DOI   ScienceOn
12 Smith, B. C., Leimkuhler, J. F., and Darrow, R. M. (1992), Yield management at American Airlines, Interfaces, 22(1), 8-31.   DOI
13 Goh, C. H., Greenberg, B. S., and Matsuo, H. (1993), Two-period perishable inventory models, Management Science, 39(5), 633-649.   DOI   ScienceOn
14 Bernstein, F. and DeCroix, G. A. (2004), Decentralized pricing and capacity decisions in a multitier system with modular assembly, Management Science, 50(9), 1293-1308.   DOI   ScienceOn
15 Bitran, G. R. and Mondschein, S. V. (1993), Pricing perishable products: an application to the retail industry, Working Paper #3592-93, Massachusetts Institute of Technology, Cambridge, MA.
16 Lazear, E. P. (1986), Retail pricing and clearance sales, The American Economic Review, 76(1), 14-32.
17 Gilbert, S. M. (2000), Coordination of pricing and multiple- period production across multiple constant priced goods, Management Science, 46(12), 1602-1616.   DOI   ScienceOn
18 Montgomery, A. L. (1994), The impact of micro-marketing on pricing strategies, Ph.D. Thesis, Graduate School of Business, University of Chicago, Illinois.
19 Federgruen, A. and Heching, A. (1999), Combined pricing and inventory control under uncertainty, Operations Research, 47(3), 454-475.   DOI   ScienceOn
20 Gallego, G. and van Ryzin, G. (1997), A multiproduct dynamic pricing problem and its applications to network yield management, Operations Research, 45(1), 24-41.   DOI   ScienceOn
21 Feng, Y. and Xiao, B. (1999), Maximizing revenues of perishable assets with a risk factor, Operations Research, 47(2), 337-341.   DOI   ScienceOn
22 Feng, Y. and Gallego, G. (1995), Optimal starting times for end-of-season sales and optimal stopping times for promotional fares, Management Science, 41(8), 1371-1391.   DOI   ScienceOn
23 Levy, D., Bergen, M., Dutta, S., and Venable, R. (1997), The magnitude of menu costs: direct evidence from large U.S. supermarket chains, The Quarterly Journal of Economics, 112(3), 791-825.   DOI   ScienceOn
24 Raafat, F. (1991), Survey of literature on continuously deteriorating inventory models, Journal of the Operational Research Society, 42, 27-37.   DOI
25 Yano, C. A. and Gilbert S. M. (2004), Coordinated pricing and production/procurement decisions: a review, In: Chakravarty, Eliashberg (eds), Managing Business Interfaces: Marketing, Engineering, and Manufacturing Perspectives, Springer, 65-103.
26 Goyal, S. K. and Giri, B. C. (2001), Recent trends in modeling of deteriorating inventory: an invited review, European Journal of Operational Research,134(1), 1-16.   DOI   ScienceOn
27 Friend, S. C. and Walker, P. H. (2001), Welcome to the new world of merchandising, Harvard Business Review, November, 133-141.
28 Rajan, A., Rakesh, and Steinberg, R. (1992), Dynamic pricing and ordering decisions by a monopolist, Management Science, 38(2), 240-262.   DOI   ScienceOn
29 Raz, G. and Porteus, E. L. (2006), A fractiles perspective to the joint price/quantity newsvendor model, Management Science, 52(11), 1764-1777.   DOI   ScienceOn
30 Weatherford, L. R. and Bodily, S. E. (1992), A taxonomy and research overview of perishable-asset revenue management: yield management, overbooking, and pricing, Operations Research, 40(5), 831-844.   DOI   ScienceOn
31 Feng, Y. and Xiao, B. (2000b), Optimal Policies of yield management with multiple predetermined prices, Operations Research, 48(2), 332-343.   DOI   ScienceOn
32 Pashigian, B. P., Bowen, B., and Gould, R. (1995), Fashion, styling, and the within-season decline in automobile prices, Journal of Law and Economics, 38, 281-309.   DOI   ScienceOn
33 Chun, Y. H. (2003), Optimal pricing and ordering policies for perishable commodities, European Journal of Operational Research, 144, 68-82.   DOI   ScienceOn
34 Bitran, G. R. and Mondschein, S. V. (1997), Periodic pricing of seasonal products in retailing, Management Science, 43(1), 64-79.   DOI   ScienceOn
35 Feng, Y. and Xiao, B. (2000a), A continuous-time yield management model with multiple prices and reversible price changes, Management Science, 46(5), 644- 657.   DOI   ScienceOn
36 McGill, J. I. and van Ryzin, G. J. (1999), Revenue management: research overview and prospects, Transportation Science, 33(2), 233-256.   DOI   ScienceOn
37 Pashigian, B. P. (1988), Demand uncertainty and sales: a study of fashion and markdown pricing, The American Economic Review, 78(5), 936-953.
38 Gallego, G. and van Ryzin, G. (1994), Optimal dynamic pricing of inventories with stochastic demand over finite horizons, Management Science, 40(8), 999- 1020.   DOI   ScienceOn
39 Abad, P. L. (1996), Optimal pricing and lot-sizing under conditions of perishability and partial backordering, Management Science, 42(8), 1093-1104.   DOI   ScienceOn
40 Law, A. M. and Kelton, W. D. (1991), Simulation Modeling and Analysis, 2nd edition, McGraw-Hill, New York.
41 Smith, S. A. and Achabal, D. D. (1998), Clearance pricing and inventory policies for retail chains, Management Science, 44(3), 285-300.   DOI   ScienceOn
42 Zhao, W. and Zheng, Y. S. (2000), Optimal dynamic pricing for perishable assets with nonhomogeneous demand, Management Science, 46(3), 375-388.   DOI   ScienceOn
43 Belobaba, P. P. (1987), Airline yield management: an overview of seat inventory control, Transportation Science, 21(2), 63-73.   DOI