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A Stochastic Model for Deciding Optimal Prices and Ordering Quantities in the Presence of Price-Driven Substitution

Authors
Publisher
한국생산관리학회
Publication Date
Keywords
  • 확정적 모형
  • 추계학적 모형
  • 수요대체
  • 가격결정
  • 최적화 모형
  • 수익경영
  • Deterministic Model
  • Stochastic Model
  • Substitution
  • Pricing
  • Optimization Model
  • Revenue Management
Disciplines
  • Mathematics

Abstract

Substitution occurs when a customer cannot purchase the originally requested product due to stockout and might buy a substitutable or similar product. Substitution also occurs when a customer might purchase a substitutable product if the price of the originally requested product changes, which is referred to as price-drive substitution. In this study, we consider a stochastic optimization model for deciding the optimal prices and ordering quantities in the presence of price-driven substitution. We also compare the existing deterministic price-driven substitution model with the stochastic price-driven substitution model of this research. The objective of this study is to investigate the impact of price-driven substitution on the optimal solutions and the expected profits through theoretical analysis and numerical experiments.

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