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Costly price changes with dynamic pricing and lot-sizing

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Journal of Revenue and Pricing Management Aims and scope

Abstract

In this article, we address the profit maximization version of the dynamic economical problem where we charge a cost per price change. This model makes an explicit link between the number of price changes and the cost of changing prices. Hence, this new cost can determine the number of different possible prices, especially when all others costs are constant, as well as it reflects the real cost of changing prices (labor, communication and so on). To solve our model, we describe a simple heuristic that strongly outperforms state-of-art solvers even for medium-size instances. Furthermore, we give numerical evidence that charging a cost per price change does not impact setups in general, even if it deeply modifies the pricing.

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Notes

  1. α t =100, β t =4, s t =50, v t =20, h t =1, ∀t.

  2. Or when parameters are substituted by their average.

  3. Values are rounded to stay integer.

  4. Data contain eight different values of holding cost, producing cost and demand intercept. They also include 5 different costs of price change, 11 different demand slopes, 10 setup cost values.

  5. T=20.

  6. The negative sign means that our heuristic returns a objective at most 0.004 per cent superior to Gurobi.

  7. The authors do not provide any numerical examples, but each pricing iteration leads to solve a so-called Wagner and Whitin problem.

  8. The same results are obtained for all value of θ.

  9. More cases are improved.

  10. The profit is bigger.

  11. Data are the same as in Figure 1.

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Authors and Affiliations

  1. Skårabakken 15, Skåla, Norway

    Guillaume Lanquepin-Chesnais

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  1. Guillaume Lanquepin-Chesnais
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Lanquepin-Chesnais, G. Costly price changes with dynamic pricing and lot-sizing. J Revenue Pricing Manag 13, 322–333 (2014). https://doi.org/10.1057/rpm.2014.13

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  • DOI: https://doi.org/10.1057/rpm.2014.13

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