Integration of Inventory and Pricing

Abstract

In Chapter 8 we analyze the traditional stochastic inventory models. Those models focus on effective replenishment strategies and typically assume that a commodity’s price is exogenously determined. In recent years, however, a number of industries have used innovative pricing strategies to manage their inventory effectively. For example, techniques such as revenue management have been applied in the airlines, hotels, and rental car agencies-integrating price, inventory control, and quality of service, see Kimes (1989). In the retail industry, to name another example, dynamically pricing commodities can provide significant improvements in profitability, as shown by Gallego and van Ryzin (1994).