Dynamic pricing of limited inventories for multi-generation products

► A retailer sells two generations products with fixed inventory in a selling horizon. ► Two models are developed depending on whether the price of the product is negotiable. ► Generalized Nash bargaining solution is adopted to describe outcome of negotiation. ► Allowing bargaining is better when th...

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Bibliographic Details
Published in:European journal of operational research 2012-03, Vol.217 (2), p.394-403
Main Authors: Kuo, Chia-Wei, Huang, Kwei-Long
Format: Article
Language:English
Subjects:
Applied sciences
Bargaining
Dynamic programming
Dynamics
Exact sciences and technology
Firm modelling
Horizon
Inventories
Inventory
Inventory control, production control. Distribution
Inventory management
Mathematical models
Mathematical programming
Multi-generation products
Negotiations
Operational research
Operational research and scientific management
Operational research. Management science
Operations research
Pricing
Pricing policies
Retailing
Revenue management
Stockpiling
Studies
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Summary:► A retailer sells two generations products with fixed inventory in a selling horizon. ► Two models are developed depending on whether the price of the product is negotiable. ► Generalized Nash bargaining solution is adopted to describe outcome of negotiation. ► Allowing bargaining is better when the negotiable product is with high inventory. In this research, we consider a retailer selling products from two different generations, both with limited inventory over a predetermined selling horizon. Due to the spatial constraints or the popularity of a given product, the retailer may only display goods from one specific generation. If the transaction of the displayed item cannot be completed, the retailer may provide an alternative from another generation. We analyze two models – posted-pricing-first model and negotiation-first model. The former considers negotiation as being allowed on the price of the second product only and in the latter, only the price of the first product is negotiable. Our results show that the retailer can adopt both models effectively depending on the relative inventory levels of the products. In addition, the retailer is better off compared to the take-it-or-leave-it pricing when the inventory level of the negotiable product is high.
ISSN:0377-2217
1872-6860
DOI:10.1016/j.ejor.2011.09.020