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Technical Note—Optimal Dynamic Joint Inventory-Pricing Control for Multiplicative Demand with Fixed Order Costs and Lost Sales

Faculty of Business Administration, Memorial University of Newfoundland, St. John's, Newfoundland, Canada A1B 3X5
Desautels Faculty of Management, McGill University, Montreal, Quebec, Canada H3A 1G5
Desautels Faculty of Management, McGill University, Montreal, Quebec, Canada H3A 1G5
ysong{at}mun.ca
saibal.ray{at}mcgill.ca
tamer.boyaci{at}mcgill.ca

This note studies the optimal dynamic decision-making problem for a retailer in a price-sensitive, multiplicative demand framework. Our model incorporates lost sales, holding cost, fixed and variable procurement costs, as well as salvage value. We characterize the structure of the retailer's (discounted) expected profit-maximizing dynamic inventory policy for both finite and infinite selling horizon problems.

Subject classifications: dynamic pricing and inventory control; multiplicative demand; fixed cost; lost sales.
History: Received January 2006; revision received January 2008; accepted January 2008.

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