Optimal pricing and ordering policies for perishable commodities

Abstract

In the pricing problem considered, a seller must determine the price for several units of a perishable or seasonal product to be sold for a limited period of time. The list price should be posted in advance of the sale and is not negotiable with potential buyers. Any product not sold by the end of the sales period will be disposed at a lower price. Assuming that the customer's demand is represented as a negative binomial distribution, we determine the optimal product price based on the demand rate, buyers' preferences, and length of the sales period. Because the seller's average revenue decreases as the number of items for sale increases, we also consider the optimal-order quantity that maximizes the seller's total expected profit. For the case where the seller can divide the sales period into several short periods, we finally propose a multi-period pricing model.