Wednesday, September 17, 2014 | 2:00pm-3:30pm | Room 335, HSBC Business School Building

Abstract

We analyze a periodic review stochastic inventory model in which demand depends on not only the current selling price but also a memory-based reference price. Pricing and inventory decisions are made simultaneously at the beginning of each period. Assuming all shortages are backlogged, the objective is to maximize the expected total discounted prot over either a finite horizon or an infinite horizon. In the finite horizon case, we prove that a reference price dependent base-stock policy is optimal, and we analyze the rm's optimal price and base-stock level. In the infinite horizon case, we show that the reference price converges to some steady state in the optimal trajectory and characterize this steady state.