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Dynamic pricing for perishable items with costly price adjustments

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Abstract

Dynamic pricing is widely adopted in inventory management for perishable items, and the corresponding price adjustment cost should be taken into account. This work assumes that the price adjustment cost comprises of a fixed component and a variable one, and attempts to search for the optimal dynamic pricing strategy to maximize the firm’s profit. However, considering the fixed price adjustment cost turns this dynamic pricing problem to a non-smooth optimal control problem which cannot be solved directly by Pontryagin’s maximum principle. Hence, we first degenerate the original problem into a standard optimal control problem and calculate the corresponding solution. On the basis of this solution, we further propose a suboptimal pricing strategy which simultaneously combines static pricing and dynamic pricing strategies. The upper bound of profit gap between the suboptimal solution and the optimal one is obtained. Numerical simulation indicates that the suboptimal pricing strategy enjoys an efficient performance.

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Notes

  1. ResearchInChina, the vertical portal for Chinese business intelligence, announces the release of a new report—China Cold Chain Industry Development Report, 2010. Available at http://www.newswiretoday.com/news/83131/.

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Acknowledgements

This work was supported by National Natural Foundation of China No. 61473204, Humanity and Social Science Youth Foundation of Ministry of Education of China No. 14YJCZH204.

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Authors and Affiliations

  1. College of Management and Economics, Tianjin University, Tianjin, 300072, China

    Jing Lu, Jianxiong Zhang & Qiao Zhang

Authors
  1. Jing Lu
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  2. Jianxiong Zhang
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  3. Qiao Zhang
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Correspondence to Qiao Zhang.

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Lu, J., Zhang, J. & Zhang, Q. Dynamic pricing for perishable items with costly price adjustments. Optim Lett 12, 347–365 (2018). https://doi.org/10.1007/s11590-017-1121-1

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  • DOI: https://doi.org/10.1007/s11590-017-1121-1

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