JOINT PRICING AND ORDERING POLICY FOR EXPONENTIALLY DECAYING INVENTORY WITH KNOWN DEMAND

This paper is concerned with the problem of simultaneously setting price and production levels for an exponentially decaying product. Such products suffer a loss in utility which is proportional to the total quantity of stock on hand. A continuous review, deterministic demand model is considered. The optimal ordering decision quantity is derived and its sensitivity to changes in perishability and product price is considered. The joint ordering pricing decision is also computed and consideration of parametric changes of these decisions indicates a nonmonotonic response for optimal price to changes in product decay. Issues of market entry and extensions to a model with shortages are also analyzed.