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Note—Pricing and Inventory Control for a Perishable Product

Department of Management Sciences, City University of Hong Kong, Kowloon, Hong Kong
Department of Management Sciences, City University of Hong Kong, Kowloon, Hong Kong
Lee Kong Chian School of Business, Singapore Management University, Singapore 178899
yanzhili{at}cityu.edu.hk
msalim{at}cityu.edu.hk
br{at}smu.edu.sg

In this note, we study the concurrent determination of pricing and inventory replenishment decisions for a perishable product in an infinite horizon. Demands in consecutive periods are independent and influenced by prices charged in each period. In particular, we treat price as a decision variable to maximize the total discounted profit. We analyze the optimal solution-structure of a two-period lifetime problem and from insights gained in numerical experiments, develop a base-stock/list-price heuristic policy for products with arbitrary fixed lifetimes. Experiments show this policy to be effective.

Key Words: perishable; pricing and inventory control
History: Received: February 3, 2006; accepted: June 15, 2008.