Optimal pricing and inventory policy with delayed payments and order cancelations

Abstract

Considering a periodic review system where the seller allows customers' delayed payments, referred to as cash-on-delivery payment scheme, we investigate the seller's optimal pricing and inventory control policy. Specifically, we examine the impact of customers' order cancelations, possibly due to their expectation of price markdown in the future. Under mild conditions, we show that the base-stock list price policy is optimal. We also investigate the impact of the customers' strategic behavior of order cancelation and their price sensitivity on the optimal retail price and inventory policy.