Pricing and Inventory Management

Dell Computers underscores the impact of the Internet on product pricing strategies more than any other company, and scores of retail and manufacturing companies have started exploring dynamic pricing to improve their operations and ultimately their bottom line.

Abstract

This article surveys academic research on price optimization models in which inventory replenishment plays a critical role. The emphasis is on integrated production/inventory and pricing models with the potential to be used for decision support at both the operational and the tactical levels. The article also reviews strategic models on supply chain competition, coordination, and cooperation built upon these operational and tactical inventory and pricing models. It is organized as follows. The article presents commonly used demand models, which is followed by a survey of deterministic periodic review inventory and pricing models. It then presents stochastic models distinguishing between single period models, multi-period models with convex ordering costs, and multi-period models with concave ordering costs. Built upon the inventory and pricing models presented in the previous sections, the article reviews models on supply chain competition, coordination, and cooperation. Finally, it provides some concluding remarks and thoughts on future research.