Optimal pricing and ordering policy under permissible delay in payments

Abstract

Many researchers have assumed that the selling price is the same as the purchase cost, and developed various EOQ models for a retailer when the supplier offers a permissible delay in payments. In this paper, we complement the shortcoming of their models by considering the difference between the selling price and the purchase cost. We then develop an algorithm for a retailer to determine its optimal price and lot size simultaneously when the supplier offers a permissible delay in payments. Our theoretical result contradicts to their conclusion that the economic replenishment interval and order quantity generally increases marginally under the permissible delay in payments.