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Title Dynamic Pricing and Inventory Management: Theory and Applications
URL
Publication Date
Degree PhD
Discipline/Department Business Administration
Degree Level doctoral
University/Publisher Washington University in St. Louis
Abstract We develop the models and methods to study the impact of some emerging trends in technology, marketplace, and society upon the pricing and inventory policy of a firm. We focus on the situation where the firm is in a dynamic, uncertain, and (possibly) competitive market environment. The market trends of particular interest to us are: (a) social networks, (b) sustainability concerns, and (c) customer behaviors. The two main running questions this dissertation aims to address are: (a) How these emerging market trends would influence the operations decisions and profitability of a firm; and (b) What pricing and inventory strategies a firm could use to leverage these trends. We also develop an effective comparative statics analysis method to address these two questions under different market trends. Overall, our results suggest that the current market trends of social networks, sustainability concerns, and customer behaviors have significant and interesting impact upon the operations policy of a firm, and that the firm could adopt some innovative pricing and inventory strategies to exploit these trends and substantially improve its profit. Our main findings are: (a) Network externalities (the monopoly setting). We find that network externalities prompt a firm to face the tradeoff between generating current profits and inducing future demands when making the price and inventory decisions, so that it should increase the base-stock level, and to decrease [increase] the sales price when the network size is small [large]. Our extensive numerical experiments also demonstrate the effectiveness of the heuristic policies that leverage network externalities by balancing generating current profits and inducing demands in the near future. (Chapter 2.) (b) Network externalities (the dynamic competition setting). In a competitive market with network externalities, the competing firms face the tradeoff between generating current profits and winning future market shares (i.e., the exploitation-induction tradeoff). We characterize the pure strategy Markov perfect equilibrium in both the simultaneous competition and the promotion-first competition. We show that, to balance the exploitation-induction tradeoff, the competing firms should increase promotional efforts, offer price discounts, and improve service levels. The exploitation-induction tradeoff could be a new driving force for the fat-cat effect (i.e., the equilibrium promotional efforts are higher under the promotion-first competition than those under the simultaneous competition). (Chapter 3.) (d) Trade-in remanufacturing. We show that, with the adoption of the very commonly used trade-in remanufacturing program, the firm may enjoy a higher profit with strategic customers than with myopic customers. Moreover, trade-in remanufacturing creates a tension between firm profitability and environmental sustainability with strategic customers, but benefits both the firm and the environment with myopic customers. We also find that, with either strategic or…
Subjects/Keywords Comparative Statics, Dynamic Pricing, Inventory Management, Social Networks, Supply Chain Management, Sustainability; Applied Mathematics; Business Administration, Management, and Operations; Management Sciences and Quantitative Methods; Operational Research
Contributors Nan Fuqiang . Yang Zhang; Amr Farahat, Jake Feldman, John Nachbar
Country of Publication us
Record ID oai:openscholarship.wustl.edu:art_sci_etds-1818
Repository wustl
Date Retrieved
Date Indexed 2020-03-31
Created Date 2016-05-15 07:00:00
Note Permanent URL: https://doi.org/10.7936/K7FT8JBP

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…trends would influence the operations decisions and profitability of a firm; and (b) What pricing and inventory strategies a firm could use to leverage these trends. We also develop an effective comparative statics analysis method to address…

…numerical studies also demonstrate that dynamic pricing leads to a much more significant profit improvement with the scarcity effect of inventory than without. (Chapter 5.) xi (e) Comparative statics analysis method. We develop a…

comparative statics method to study a general joint pricing and inventory management model with multiple demand segments, multiple suppliers, and stochastically evolving market conditions. Our new method makes componentwise comparisons between the focal…

…decision variables under different parameter values, so it is capable of performing comparative statics analysis in a model where part of the decision variables are non-monotone, and it is well scalable. Hence, our new method is promising for comparative

…substantially improve its profit. To facilitate the analysis of the two main questions, we also develop an effective comparative statics analysis method for a general class of joint pricing and inventory management models. Network externalities (the monopoly…

…demand segment and the reference procurement cost of each supply channel are fluctuating over the planning horizon according to an exogenous Markov process. Comparative statics analysis is essential in this model, but the commonly used implicit function…

…theorem (IFT) approach and monotone comparative statics (MCS) approach are not amenable. Hence, we develop a new comparative statics method for this model. We utilize the method to characterize the structure of the optimal policy and…

…the impact of market fluctuation, demand segmentation, and supply diversification upon the optimal policy in each period. The new method establishes the desired comparative statics results 5 by iteratively linking the comparisons between optimizers…

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