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(s, S) Optimality in Joint Inventory-Pricing Control: An Alternate Approach

Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
Stern School of Business, New York University, New York, New York 10012
huh{at}ieor.columbia.edu
gjanakir{at}stern.nyu.edu

We study a stationary, single-stage inventory system, under periodic review, with fixed ordering costs and multiple sales levers (such as pricing, advertising, etc.). We show the optimality of (s, S)-type policies in these settings under both the backordering and lost-sales assumptions. Our analysis is constructive and is based on a condition that we identify as being key to proving the (s, S) structure. This condition is entirely based on the single-period profit function and the demand model. Our optimality results complement the existing results in this area.

Subject classifications: inventory/production; uncertainty; stochastic; marketing; pricing; advertising.
History: Received May 2006; revision received March 2007; accepted April 2007.

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