TY - JOUR
T1 - A risk tolerance analysis for a joint price differentiation and inventory decisions problem with demand leakage effect
AU - Raza, Syed Asif
AU - Rathinam, Sivakumar
N1 - Publisher Copyright:
© 2016 Elsevier B.V.
PY - 2017/1/1
Y1 - 2017/1/1
N2 - Price differentiation is a commonly used practice in Revenue Management (RM) to improve a firm's profitability. However, most studies in the literature have considered a risk-neutral firm to demonstrate the benefits of price differentiation. The main contribution of this paper is in considering several important objectives while determining the optimal product prices and order (production) quantities for a risk-adjusted firm with demand leakage effects in the presence of a price-dependent stochastic demand. The objectives considered include the maximization of a firm's expected profit and maximizing the probability of exceeding the risk adjusted expected revenue. Closed-form expressions for optimal product prices and production quantities are derived for several of these objectives. A numerical study is also presented to calibrate the impact of a firm's risk tolerance and other factors such as demand leakage, market demand variability on the firm's profitability and its optimal decision.
AB - Price differentiation is a commonly used practice in Revenue Management (RM) to improve a firm's profitability. However, most studies in the literature have considered a risk-neutral firm to demonstrate the benefits of price differentiation. The main contribution of this paper is in considering several important objectives while determining the optimal product prices and order (production) quantities for a risk-adjusted firm with demand leakage effects in the presence of a price-dependent stochastic demand. The objectives considered include the maximization of a firm's expected profit and maximizing the probability of exceeding the risk adjusted expected revenue. Closed-form expressions for optimal product prices and production quantities are derived for several of these objectives. A numerical study is also presented to calibrate the impact of a firm's risk tolerance and other factors such as demand leakage, market demand variability on the firm's profitability and its optimal decision.
KW - Alternative optimization objectives
KW - Degree of risk tolerance
KW - Demand leakage
KW - Distribution-free approach
KW - Market segmentation
KW - Price differentiation
KW - Revenue management
KW - Survival analysis
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U2 - 10.1016/j.ijpe.2016.09.026
DO - 10.1016/j.ijpe.2016.09.026
M3 - Article
AN - SCOPUS:84994706888
SN - 0925-5273
VL - 183
SP - 129
EP - 145
JO - International Journal of Production Economics
JF - International Journal of Production Economics
ER -