Dynamical pricing strategy for one-manufacturer and two-retailer supply chain model

Hui-Chih Hung*, Jung Kyung Kim, Carina C.L. Calugcug

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

The benefits of dynamic pricing methods have long been known in industries, such as airlines, hotels, and public utilities, where the capacity is fixed in the short-term and the product/service is perishable. In recent years, there has been an increasing adoption of dynamic pricing policies in retail and other industries, where the sellers have the ability to store inventory. This paper looks intensively into the 3C (Computer, Communication, Consumer-electronics) products market, which is very dynamic due to technology innovation and short life cycle. Under this circumstance, it becomes more and more crucial for retailers to decide on the correct inventory level to maintain. Meanwhile, the managers also face the problem of selling a given stock of items by the deadline. In this paper, we investigate the problem of dynamically pricing when the demand is price and time sensitive. To tackle these problems, we build a mathematical model for a two-layer supply chain, which consists of one manufacturer and two retailers. In this model, we assume the demand is a linear function of retailer price and time. As a Stackelberg game, the manufacturer is the leader to decide the wholesale prices based on order quantity and time. Our objective is to maximize the manufacturer profit. Finally, we successfully identify the optimal pricing strategy for each participant in the system.

Original languageEnglish
Pages (from-to)195-202
Number of pages8
JournalInternational Journal of Mathematical Models and Methods in Applied Sciences
Volume4
Issue number3
StatePublished - 30 Nov 2010

Keywords

  • Dynamic pricing
  • Inventory rationing
  • Perishable product
  • Stackelberg game
  • Supply chain management

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