Optimal pricing policy for deterioration items with preservation technology investment

Bai Zhenyu; Zhang Jianxiong

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Optimal pricing policy for deterioration items with preservation technology investment

Bai Zhenyu 1,Zhang Jianxiong 2 * #

1.Institute of Systems Engineering, Tianjin University, TianJin 300072

2.Institute of Systems Engineering, Tianjin University, Tianjin 300072

*Correspondence author

#Submitted by

Subject:

Funding: the Program for Changjiang Scholars and Innovative Research Team in University of China（No.IRT1028）, the Research Fund for the Doctor Program of Higher Education of China （No.No. 20090032120034）, This work was supported by the National Nature Science Foundation of China（No.No. 61004015）, the Program for New Century Excellent Talents in Universities of China （No.NECT-11-0377）

Opened online:30 January 2013

Accepted by: none

Citation: Bai Zhenyu,Zhang Jianxiong.Optimal pricing policy for deterioration items with preservation technology investment[OL]. [30 January 2013] http://en.paper.edu.cn/en_releasepaper/content/4515777

This paper considers the problem of simultaneously determining the price and inventory control strategies for deteriorating items. It is assumed that the rate of deterioration can be reduced by means of effective capital preservation technology investment and the demand rate is a function of selling price. The objective of this study is to simultaneously determine the optimal selling price, the optimal length of replenishment cycle and the optimal preservation technology investment such that the total profit per unit time is maximized. First, for any given preservation technology investment, we prove that the optimal selling price and the optimal length of replenishment cycle exist and are unique. Next, we show that the total profit is a concave function of the preservation technology investment. Then, an effective algorithm is designed to find the optimal solution of the proposed model. Finally, numerical examples to illustrate the solution procedure and some managerial implications are provided.

Keywords:Deteriorating items; Pricing; Replenishment cycle; Preservation technology investment

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