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Joint pricing and rationing in a production system with two demand classes

Ahmadi, M ; Sharif University of Technology

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  1. Type of Document: Article
  2. DOI: 10.1504/EJIE.2014.066939
  3. Abstract:
  4. We consider a production system with a single product and two classes of customers. Customers are segmented into two classes: 1) loyal and 2) occasional. Each class has a different shortage cost for the system. The demand of the customer classes is assumed to be stochastic and price sensitive, and distributed as a Poisson process. The objective is to determine the inventory rationing as well as pricing policies in order to maximise the profit function of the system. We formulate the problem as a Markov decision problem and characterise the optimal policies for pricing and inventory rationing. The joint pricing and rationing threshold policy is shown to be optimal. The performance of the optimal and non-optimal policies is comparatively analysed using a numerical study
  5. Keywords:
  6. Pricing ; Two demand classes ; Costs ; Sales ; Stochastic systems ; Demand class ; Inventory rationing ; Markov decision problem ; Production system ; Revenue management ; Threshold policies ; Two available prices ; Two classes of customers ; Economics
  7. Source: European Journal of Industrial Engineering ; Vol. 8, issue. 6 , 2014 , p. 836-860
  8. URL: http://www.scititles.com/journal-articles/4109