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Optimal pricing policy for deteriorating items with preservation technology investment

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  • This paper considers the problem of simultaneously determining the price and inventory control strategies for deteriorating items. It is assumed that the rate of deterioration can be reduced by means of effective preservation technology investment and the demand rate is a function of selling price. The goal of this study is to maximize the total profit per unit time by simultaneously determining the optimal selling price, length of replenishment cycle and preservation technology investment. First, for a given preservation technology investment, we prove that the optimal selling price and the optimal length of replenishment cycle exist and are unique. Next, it is shown that the total profit per unit time is a concave function of the preservation technology investment. Then, an effective algorithm is designed to find the optimal joint policy. Finally, numerical examples to illustrate the solution procedure and some managerial implications are provided.
    Mathematics Subject Classification: Primary: 90B05.

    Citation:

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