Dynamical pricing for one-manufacturer and two- retailers supply chain model

Abstract

The benefits of dynamic pricing methods have long been known in industries, such as airlines, hotels, and electric utilities, where the capacity is fixed in the short-term and perishable. In recent years, there has been an increasing adoption of dynamic pricing policies in retail and other industries, where the sellers have the ability to store inventory. This paper looks intensively into the 3C (Computer, Communication, Consumer-electronics) products market, which is very dynamic due to technology innovation and short life cycle. Under this circumstance, it becomes crucial for retailers to decide on the correct inventory level to maintain. Meanwhile, the managers also face the problem of selling a given stock of items by the deadline. So we will also investigate the problem of dynamically pricing such items when demand is price sensitive. To tackle these problems, we build a mathematical model for a two layer supply chain which consists of one manufacturer and two retailers. We identify the optimal pricing strategies for each of the players in the system.