Abstract
We consider a production system with a single product and two classes of customers. Customers are segmented into two classes: 1) loyal and 2) occasional. Each class has a different shortage cost for the system. The demand of the customer classes is assumed to be stochastic and price sensitive, and distributed as a Poisson process. The objective is to determine the inventory rationing as well as pricing policies in order to maximise the profit function of the system. We formulate the problem as a Markov decision problem and characterise the optimal policies for pricing and inventory rationing. The joint pricing and rationing threshold policy is shown to be optimal. The performance of the optimal and non-optimal policies is comparatively analysed using a numerical study.
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