Abstract
A combination of substitutable and complementary products is very important for any business industry to make all-round profit from different aspects. How deterioration affects complementary products or substitutable products is discussed in this study. This study investigates the pricing and inventory decisions for complementary and substitutable items which are deteriorating in nature. Four models are analyzed where the demand of one product is dependent upon the selling price and the price of another product. This paper tries to compute the optimum prices and order quantities to optimize the total profit, which is the main aim. Theoretically, this model is solved by a classical optimization method. Numerical examples demonstrate the applicability of this model. Results conclude that the total profit is dependent on the degree of substitutability and complementarity. A sensitivity analysis of optimal solutions is given to test the stability of the proposed model.
Highlights
Everyday life starts with the use of a toothbrush and toothpaste, which are complementary products
The degree of complementarity of a product has an inverse impact on the selling price, i.e., the increasing complementarity gives less profit
In the case that one of the complementary products is not available at the right time, the chances to it was observed that selling prices and lot sizes of both products as well as the average profit were sale of the other product are smaller
Summary
Everyday life starts with the use of a toothbrush and toothpaste, which are complementary products. Coca-Cola and Pepsi are two substitutable products as both can satisfy the purpose. Substitutable products give the manufacturer tough competition, as it is important to choose alternative products very wisely such that it can satisfy the demand as well as the quality of the original product. There are several researches who focus on substitutable and complementary products, while none of them have investigated both inventory and pricing decisions of the products simultaneously. This investigation is done for deteriorating products. Four models are discussed for pricing and inventory decisions of two types of items, which may be complementary or substitutable, and deteriorating or non-deteriorating.
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