Price-to-Quality Ratio Dependent Demand: Optimal Dynamic Pricing and Replenishment Period

Abstract

In this paper, we consider a deterministic model of an inventory system that consists of a single type of storable perishable product, which is periodically replenished and a demand depends on price-to-quality ratio. The product quality decays continuously over time. The objective is to determine the optimal continuous price function and replenishment cycle time simultaneously maximizing the unit time profit. Holding cost is not considered and shortages are not allowed. A number of examples are considered to illustrate the dynamics of the optimal policy under linear decreasing of the product quality and different assumptions regarding demand.