4.5 Article

Dynamic joint pricing and production policy for perishable products

Journal

INTERNATIONAL TRANSACTIONS IN OPERATIONAL RESEARCH
Volume 25, Issue 6, Pages 2031-2051

Publisher

WILEY
DOI: 10.1111/itor.12239

Keywords

perishable products; dynamic pricing; production; optimal control

Funding

  1. National Nature Science Foundation of China [61473204, 71201132]
  2. Humanity and Social Science Youth Foundation of the Ministry of Education of China [14YJCZH204]
  3. Program for New Century Excellent Talents in Universities of China [NECT-11-0377]

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A joint dynamic pricing and production problem for perishable products without shortages is considered. The demand rate is price-dependent and time-varying. This paper constructs an optimal control model to maximize the total profit under a general nonlinear production cost function. The feature of the optimal joint dynamic pricing and production policy is analyzed by solving the corresponding optimal control problem on the basis of improved Pontryagin's maximum principle. Then, an effective algorithm is designed to obtain the optimal joint policy. The case of the joint static optimal policy is also investigated and compared with the dynamic one. Finally, numerical examples are presented to illustrate the effectiveness of the proposed methods, and some managerial implications are provided for the management of perishable items.

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