Integrating Dynamic Pricing and Inventory Control for Fresh Agriproduct under Multinomial Logit Choice

Abstract EN

In this article, we investigate a joint pricing and inventory problem for a retailer selling fresh agriproducts (FAPs) with two-period shelf lifetime in a dynamic stochastic setting, where new and old FAPs are on sale simultaneously.

At the beginning of each period the retailer makes ordering decision for new FAP and sets regular and discount price for new and old inventories, respectively.

After demand realization, the expired leftover is disposed and unexpired inventory is carried to the next period, continuing selling.

Unmet demand of all FAPs is backordered.

The objective is to maximize the total expected discount profit over the whole planning horizon.

We present a price-dependent, stochastic dynamic programming model taking into account zero lead time, linear ordering costs, inventory holding, and backlogging costs, as well as disposal cost.

Considering the influence of the perishability, we integrate a Multinomial Logit (MNL) choice model to describe the consumer behavior on purchasing fresh or nonfresh product.

By way of the inverse of the price vector, the original formulation can be transferred to be jointly concave and tractable.

Finally we characterize the optimal policy and develop effective methods to solve the problem and conduct a simple numerical illustration.