Risk and revenue of a lessor's dynamic joint pricing and inventory planning with adjustment costs under differential inflation

Abstract

Leasing decision-making problems have attracted attention in recent years mostly benefiting from operational research tools. This paper investigates crucial missing assumptions from the newly emerged integrated sales-leasing problem (ISLP). New assumptions are considered such as price adjustment costs, for employing impact of price changes, and differential inflationary condition under which lease payments and operational costs are deflated and inflated respectively. Impact of default risk has been considered by variance of net present value in objective function. The ISLP mathematical model has been developed with new constraints and objective functions. Also, the conditions of Taylor expansion approximation have been discussed for model parameters. Optimal and Pareto solutions have been obtained for small and large size sample problem by exact approach and a meta-heuristic algorithm. Eventually, sensitivity analysis has been provided for parameters of model such as optimal revenue, risk and lease payments behaviour in terms of increase in various inflation rates. Results show that for the competitive inflation-sensitive demand functions, an increase in inflation, causes less demand for purchase and more risk for leasing and therefore a decrease in total revenue.