Optimal Pricing and Lot-Sizing Under Conditions of Perishability and Partial Backordering

• Published in: Management science Vol. 42; no. 8; pp. 1093 - 1104
• Main Author: Abad, P. L
• Format: Journal Article
• Language: English
• Published: Linthicum, MD INFORMS 01-08-1996; Institute for Operations Research and the Management Sciences
• Series: Management Science
• Subjects: Applied sciences; Carrying costs; Costs; Decision making; Decreasing functions; Exact sciences and technology; Inventories; Inventory; Inventory control; Inventory control, production control. Distribution; Lot; Management; Marketing; marketing/operations interface; Mathematical models; Mathematical procedures; Operational research and scientific management; Operational research. Management science; operations interface; Optimal solutions; Perfect price discrimination; perishable good; Perishable goods; Perishables; Pricing; Pricing policies; Selling price; Sensitivity analysis; Demand; Non linear equation; Production management; Perishable item; Sensitivity analysis; Optimal solution; Pricing; Inventory control; Lot sizing
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.42.8.1093

We formulate a generalized model of dynamic pricing and lot-sizing by a reseller who sells a perishable good. We assume that when it is economic to backlog demand, the reseller can plan for periods of shortage during which demand can be partially backordered. When the good is highly perishable, the reseller may need to backlog demand in order to market the good at a reasonable price. We present a simple solution procedure for solving the optimization problem. The procedure entails solving first a single nonlinear equation and then, if required, two nonlinear equations.