188 / 2024-04-22 21:31:03

Distribution-free joint inventory and pricing control across products

inventory control, pricing, distributionally robust optimization

We study a one-period, two-item joint inventory and pricing control problem in the presence of limited information regarding the distribution of demand for the two products, only knowing the mean and variance. There is a cross price-effect between the two products, indicating that the demand for each product is influenced by the prices of both products. We employ a distributionally robust model to determine inventory and prices that maximize the worst-case expected profit across the distributions consistent with their mean and variance. Closed-form optimal solutions for the joint inventory and pricing control problem of two products are derived under specific conditions. Numerical experiments show that managing the two products jointly, rather than independently, can significantly enhance profits.