Optimal preservation technology investment and pricing policy for fresh food

Abstract

In this research, we address the issue how the supermarket properly choose and balance the preservation technology (PT) investment and the pricing of fresh food in an imperfectly competitive market environment, in which the shortage is allowed during a sales period. If the inventory level decreases only by the demand, we have proved that there exists an optimal pair of PT investment and pricing of fresh food to maximize the total profit during a cycle. Proper PT investment and pricing can bring more profits but the supermarket should investigate the market type and adopt different strategies. In the extended model, the inventory level in a sales cycle drops to zero due to demand and deterioration owing to the nature of perishable foods, and the reduced inventory loss will be affected by PT investment. When the initial deterioration rate is high, it means that the supermarket should invest in PT. Otherwise, the optimal strategy for the supermarket is not to invest in PT.