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OR Spectrum 29:193205 (2007)
DOI 10.1007/s00291-006-0049-0
REGULAR ARTICLE
Published online: 18 August 2006 Springer-Verlag 2006
Abstract We consider a capacitated make-to-stock production system that offers a product to a market of price-sensitive users. The production process is partially controlled. On the one hand, the decision-maker controls the production of a single facility. On the other hand, an uncontrolled flow of items arrives at the stock. Such a situation occurs in several contexts; for example, when there is a return flow of products or a fixed delivery contract. We model the system as a make-to-stock queue with lost sales. We address the static pricing problem and the dynamic pricing problem with the objective of maximizing the average profit over an infinite horizon. For both problems, we characterize the optimal production and pricing policy. We also obtain analytical results for the static pricing problem. From numerical results, we show that dynamic pricing might be much more beneficial when the production is not totally controlled.
Keywords Make-to-stock queue . Static pricing . Dynamic pricing . Markov decision process
JEL Classification C00
1 Introduction
Recent years have seen an increased adoption of dynamic pricing (DP) strategies in retail and manufacturing companies. However, in industries where the sellers have the capability to store inventory and to replenish it, the benefits of DP with respect to static pricing (SP) are not always obvious. When pricing and replenishment
J.-P. Gayon (*)
Laboratoire Gilco, ENSGI-INPG, 46, Avenue Flix Vialet, 38031 Grenoble, Cedex, France E-mail: [email protected]
Y. Dallery
Laboratoire Gnie Industriel, cole Centrale Paris, Grande Voie des Vignes, 92295 Chatenay-Malabry, Cedex, FranceE-mail: [email protected]
Jean-Philippe Gayon . Yves Dallery
Dynamic vs static pricing in a make-to-stock queue with partially controlled production
194 J. P. Gayon and Y. Dallery
decisions are jointly optimized, Chen et al. (2004) and Gayon et al. (2004) exhibit rather modest benefits of DP strategies with respect to SP strategies (when the demand is stationary). If the decision-maker loses, in part, control over the replenishment decisions, we might expect higher benefits from DP. In this paper, our goal is to investigate the benefits of DP when the replenishment process is not totally controlled. To our knowledge, there is currently no academic work studying this issue.
The assumption of a partially uncontrolled replenishment...