Journal of Applied Mathematics and Decision Sciences
Volume 2008 (2008), Article ID 483267, 14 pages
doi:10.1155/2008/483267
Research Article
Continuously Increasing Price in an Inventory Cycle: An Optimal
Strategy for E-Tailers
1Management Department, La Salle University, 1900 W. Olney Avenue, Philadelphia, PA 19141-1199, USA
2IS/OM Department, Fairfield University, 1073 North Benson Road, Fairfield, CT 06824-5154, USA
3Computer Science and Information Systems Department, School of Engineering and Technology, National University, 11255 North Torrey Pines Road, La Jolla, CA 92037-0515, USA
Received 31 May 2007; Accepted 21 April 2008
Academic Editor: Andreas Soteriou
Copyright © 2008 Prafulla Joglekar et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Abstract
Operations researchers have always assumed that when a product's unit cost
is constant and its demand curve is known and stationary, a retailer of the product would find it optimal to replenish the inventory with a fixed quantity and to sell the product always at a fixed price. We present, with proof, a model that shows that, in such a case, an e-tailer is better off using a continuously increasing price strategy than using a fixed price strategy within each inventory cycle. Sensitivity analysis shows that this strategy is particularly profitable when demand is highly price sensitive and the inventory ordering and carrying costs are high.