Dynamic pricing for a production/inventory system in a fluctuating demand environment
by
Fikri Karaesmen
Koc University
We consider
dynamic pricing and replenishment decisions for a production/inventory system
modeled by a make-to-stock queue.
The potential customer demand is generated by a Markov-Modulated
(environment-dependent) Poisson process and the actual demand
depends on the price offered at the time of the transaction. Using a Markov
Decision Process framework, we obtain results on the structure
of the optimal replenishment and pricing policies. We also carry out a numerical
study in order to assess the potential benefits of dynamic
pricing in different situations. Our results indicate that dynamic pricing is
potentially more beneficial in a fluctuating demand environment.