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A nonlinear continuous time optimal control model of dynamic pricing and inventory control with no backorders
Author(s) -
Adida Elodie,
Perakis Georgia
Publication year - 2007
Publication title -
naval research logistics (nrl)
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.665
H-Index - 68
eISSN - 1520-6750
pISSN - 0894-069X
DOI - 10.1002/nav.20250
Subject(s) - inventory control , time horizon , dynamic pricing , nonlinear system , mathematical optimization , production (economics) , computer science , function (biology) , optimal control , holding cost , inventory theory , key (lock) , economics , operations research , mathematics , microeconomics , physics , computer security , quantum mechanics , evolutionary biology , biology
In this paper, we present a continuous time optimal control model for studying a dynamic pricing and inventory control problem for a make‐to‐stock manufacturing system. We consider a multiproduct capacitated, dynamic setting. We introduce a demand‐based model where the demand is a linear function of the price, the inventory cost is linear, the production cost is an increasing strictly convex function of the production rate, and all coefficients are time‐dependent. A key part of the model is that no backorders are allowed. We introduce and study an algorithm that computes the optimal production and pricing policy as a function of the time on a finite time horizon, and discuss some insights. Our results illustrate the role of capacity and the effects of the dynamic nature of demand in the model. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007