Joint Pricing and Inventory Control for Seasonal and Substitutable Goods Mentioning

Nowadays many well-known firms may produce similar products at different prices in order to remainin the competitive environment. The price differences may cause substitution condition whichmotivates the customers to substitute similar cheaper product with an expensive one leading to anenvironment which is known as customer-based price driven substitution . This research proposes anew mathematical model towards a joint dynamic pricing and inventory control for seasonal andsubstitutable goods in a competitive market over a finite time planning horizon. It is assumed that thetwo substitute goods belong to two different rival firms. The objective is to determine the optimalprice, order quantity and the number of periods for one product in the presence of symmetrical andasymmetrical substitutions such that the total profit of the related firm is maximized. First it is showedthat total profit is a concave function of price which leads us to a unique optimal solution. To providethe optimal solution a simple algorithm is developed. Finally, in order to evaluate the performance ofproposed algorithm a numerical example is presented