Profit Optimization for Zero Ending Inventories Dynamic Pricing Model under Stochastic Demand and Fixed Lifetime Product

Abstract

Abstract We consider a single perishable product under a compound Poisson demand with a price sensitive intensity and a continuous batch size distribution. A model of a dynamic retail price control with an adjustable coefficient is proposed providing almost surely zero ending inventories at the end of the product’s lifetime. To obtain probabilistic characteristics of the selling process and the expected profit a diffusion approximation of the demand process is used. The task of the expected profit optimization with respect to the coefficient and lot size for a linear intensity-of-price dependence is solved.