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Dynamic pricing of substitutable products with limited inventories under logit demand

Title
Dynamic pricing of substitutable products with limited inventories under logit demand
Author
서민석
Keywords
Pricing; inventory; consumer choice; dynamic pricing; substitutable products; REVENUE MANAGEMENT; BEHAVIOR; CHOICE; FLIGHTS
Issue Date
2011-04
Publisher
TAYLOR & FRANCIS INC
Citation
IIE TRANSACTIONS, v. 43, NO 5, Page. 323-331
Abstract
This article considers the dynamic pricing of two substitutable products over a predetermined, finite selling season. The initial inventory levels of the products are fixed exogenously and there are no replenishment opportunities during the season. It is assumed that each arriving customer chooses from available products based on the multinomial logit choice model, which captures the effect of prices on consumer choice. Every time a product runs out of stock, the set of choices shrinks, capturing the effect of stockouts on consumer choice. It is shown that, under the optimal pricing policy, the marginal value of an item is increasing in the remaining time and decreasing in its own stock level and the other product's stock level. Despite such non-surprising behavior on the part of marginal values, the optimal price itself is not simply monotonic in the remaining time or the other product's stock level. For example, a product's optimal price may increase if the remaining time decreases or if the total inventory grows. It is shown that such optimal behavior can be understood through alternative gauges such as the optimal price difference between the two products and the optimal purchase probabilities.
URI
http://www.tandfonline.com/doi/abs/10.1080/0740817X.2010.521803http://hdl.handle.net/20.500.11754/35025
ISSN
0740-817X
DOI
10.1080/0740817X.2010.521803
Appears in Collections:
GRADUATE SCHOOL OF TECHNOLOGY & INNOVATION MANAGEMENT[S](기술경영전문대학원) > TECHNOLOGY MANAGEMENT(기술경영학과) > Articles
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