Dynamic pricing for non-instantaneous deteriorating items

Abstract

An optimal dynamic pricing strategy for non-instantaneous deteriorating items exhausted in a sales period without replenishment is explicitly characterized. Originally, the inventory level of the items reduces simply as a result of customer demand, and subsequently decreases owing to both demand and deterioration. This paper formulates a dynamic pricing model to maximize the enterprise's profit. The optimal dynamic pricing strategy is obtained by solving the optimization problem based on Pontryagin's maximum principle. Two static pricing models, including a uniform pricing model and a two-stage pricing model, are carried out to compare with the dynamic pricing model to show the significant advantage of the dynamic strategy. Furthermore, numerical examples, together with sensitivity analysis of the optimal solution with respect to major parameters, are provided to illustrate the effectiveness of the proposed method.