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OPTIMAL PRICING AND PRODUCTION POLICIES OF A MAKE-TO-STOCK SYSTEM WITH FLUCTUATING DEMAND

Published online by Cambridge University Press:  16 February 2009

Jean-Philippe Gayon ,
Işılay Talay-Değirmenci ,
Fikri Karaesmen  and
E. Lerzan Örmeci
Jean-Philippe Gayon
Affiliation:
Laboratoire G-SCOP, Grenoble INP 38031 Grenoble Cedex 1, France E-mail: jean-philippe.gayon@g-scop.fr
Işılay Talay-Değirmenci
Affiliation:
The Fuqua School of Business, Duke University, Durham, NC, 27708 E-mail: isilay.talay@duke.edu
Fikri Karaesmen
Affiliation:
Department of Industrial Engineering, Koç University, 34450, Sarıyer, İstanbul, Turkey E-mail: fkaraesmen@ku.edu.tr; lormeci@ku.edu.tr
E. Lerzan Örmeci
Affiliation:
Department of Industrial Engineering, Koç University, 34450, Sarıyer, İstanbul, Turkey E-mail: fkaraesmen@ku.edu.tr; lormeci@ku.edu.tr
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Abstract

We study the effects of different pricing strategies available to a production–inventory system with capacitated supply, which operates in a fluctuating demand environment. The demand depends on the environment and on the offered price. For such systems, three plausible pricing strategies are investigated: static pricing, for which only one price is used at all times, environment-dependent pricing, for which price changes with the environment, and dynamic pricing, for which price depends on both the current environment and the stock level. The objective is to find an optimal replenishment and pricing policy under each of these strategies. This article presents some structural properties of optimal replenishment policies and a numerical study that compares the performances of these three pricing strategies.

Information

Type
Research Article
Information
Probability in the Engineering and Informational Sciences , Volume 23 , Issue 2 , April 2009 , pp. 205 - 230
Copyright
Copyright © Cambridge University Press 2009

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