Pricing and inventory carryover strategy considering cost learning effect and strategic consumers

Anticipating the markdown in the future price due to the cost reduction of the firm, more and more consumers tend to delay their purchasing to the later period. Incorporating the strategic behavior of consumers, this paper establishes a two-period production and selling model under dynamic pricing strategy and price commitment strategy respectively, with considering stochastic learning effect in which the firm may or may not have the inventory carryover option. The results show that the firm may hold inventory under dynamic pricing while no inventory is kept under price commitment. Additionally, consumers' patience level enhances the benefit of inventory carryover. Furthermore, for the firm with relatively high farsighted level and low inventory holding cost, the dynamic pricing equipped with inventory carryover outperforms the price commitment strategy. Finally, numerical examples are conducted to analyze the impacts of important parameters on the firm's choice of pricing strategies.

Automated summary

This paper investigates the effects of dynamic pricing and price commitment strategies on inventory holding and sales performance in a production and selling model that accounts for consumer strategic behavior and stochastic learning effect. The results show that consumers' patience level has a positive impact on inventory holding, and for firms with high farsightedness and low inventory holding costs, dynamic pricing with inventory carryover outperforms the price commitment strategy.