JOINT PRICING AND INVENTORY CONTROL FOR PERISHABLE PRODUCTS

Abstract

This thesis studies a joint pricing and inventory control problem in a finite horizon for two vertically differentiated products labelled as new and old products. We split the dynamic programming recursion into two subproblems. In the first subproblem called the inter-stage problem, the firm adjusts the prices for the products in a dynamic fashion over stages and replenishes the new products at the beginning of each stage. In the second subproblem called the intra-stage problem, the firm charges different but fixed prices for both new and old products to exploit consumers' heterogeneous preferences over substitutable products. We show that price discrimination enjoys the largest advantage over the (quality adjusted) unform pricing when i) the quality difference between two products becomes large and the inventory level of the old product is much higher than that of the new one; ii) under the uniform pricing, only new products can be sold.