Academic SeminarDynamic Pricing or Dynamic Logistics?
- 2019-12-09 ~ 2019-12-09
- School of Management Engineering
- Operations Strategy & Management Science
We would like to invite you to participate in Management Engineering(ME) Seminar.
1. When: December 9 (Monday), 14:00 ~ 15:30
2. Where: Building 9, #9601
3. Speaker: Prof. Thunyarat Amornpetchkul (NIDA business school)
4. Topic: Dynamic Pricing or Dynamic Logistics?
5. Research field: Operations Strategy and Management Science
* Lecture will be delivered in English.
We consider a dynamic pricing problem of a retailer who sells a product through two channels (e.g., online and physical store). The inventory is kept at two separate locations, dedicated for demand arriving at each channel. To balance inventory and demand at each channel, the retailer may employ a price differentiation policy and/or an inventory transshipment policy. A price differentiation policy helps manage demand by allowing the retailer to charge different prices for the same product sold at different channels in each period. On the other hand, an inventory transshipment policy acts on the inventory side by allowing the retailer to transfer inventory between the channels when needed. Assuming the customer's choice follows a multinomial logit model, we characterize the retailer's optimal pricing and transshipping policy, and compare the effectiveness of the two mechanisms in improving profits. We find that the optimal price differentiation policy in the current period always results in a larger expected sales volume, compared to the optimal uniform pricing policy. On the other hand, the optimal transshipment decision may result in a larger or smaller expected sales. While price differentiation provides a larger profit improvement than transshipment does in many situations, transshipment is shown more effective when the retailer holds significantly less inventory at the high-margin channel. Furthermore, when implemented concurrently, the benefit from price differentiation and inventory transshipment mechanisms may either substitute or complement each other. The two mechanisms can substitute each other when the retailer's objective is to correct his inventory position. However, when the retailer prefers to maintain the same balance of inventory at the channels, the two mechanisms work together, complementarily.