Inventory control and pricing with alternative lead times

Abstract

In this chapter, we consider joint inventory and pricing decisions. The seller can adjust the price to control the arrival rates directly. We derive the optimal joint policies and then compare the two mechanisms using a hybrid model in which the seller must choose between the two control means in each period. Our results indicate that the inventory decision is meaningful in the high-inventory case, and the pricing decision is advantageous when the inventory level is low. We further demonstrate the equivalence of the two models and show that the optimal policy in the hybrid model is a switching policy characterized by a switching threshold.