Partial myopia vs. forward-looking behaviors in a dynamic pricing and replenishment model for perishable items

Abstract

<p style='text-indent:20px;'>This paper studies a dynamic pricing and replenishment problem for perishable items considering the behavior of decision-maker (partially myopic or forward-looking) and the dynamic effects of cumulative sales. A dynamic optimization model is presented to maximize the total profit per unit time and solved on the basis of Pontryagin's maximum principle. The optimal pricing and replenishment strategies for partially myopic and forward-looking scenarios are obtained. By comparing the partially myopic and forward-looking strategies through numerical analysis, we find the main results: First, applying a skimming pricing strategy might be a good choice when the saturation effects are considered. Second, the decreasing rate of product sales, deterioration coefficient, and holding cost of perishable items per unit exhibit impact on the behavioral preference of decision-maker. Under certain conditions, partially myopic behavior can bring more profit than forward-looking behavior. These managerial implications provide useful guidelines for the decision-maker.