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PRICING PERISHABLE PRODUCTS WITH COMPOUND POISSON DEMANDS

Published online by Cambridge University Press:  17 May 2011

Pengfei Guo ,
Zhaotong Lian  and
Yulan Wang
Pengfei Guo
Affiliation:
Department of Logistics and Maritime Studies, Hong Kong Polytechnic University, Hong Kong E-mail: lgtpguo@polyu.edu.hk
Zhaotong Lian
Affiliation:
Faculty of Business Administration, University of Macau, Macau E-mail: lianzt@umac.mo
Yulan Wang
Affiliation:
Institute of Textiles and Clothing, Hong Kong Polytechnic University, Hong Kong E-mail: yulan.wang@inet.polyu.edu.hk
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Abstract

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We consider the dynamic pricing problem of perishable products in a system with a constant production rate. Potential demands arrive according to a compound Poisson process, and are price-sensitive. We carry out the sample path analysis of the inventory process and by using level-crossing method, we derive its stationary distribution given a pricing function. Based on the distribution, we express the average profit function. By a stochastic comparison approach, we characterize the pricing strategy given different customers willingness-to-pay functions. Finally, we provide an approximation algorithm to calculate the optimal pricing function.

Keywords

revenue managementdynamic pricingperishable inventorylevel-crossing
Type
Research Article
Information
Probability in the Engineering and Informational Sciences , Volume 25 , Issue 3 , July 2011 , pp. 289 - 306
Copyright
Copyright © Cambridge University Press 2011

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