【Time】 2:00PM-3:00PM, January 7, 2010 (Thursday)   

【Venue】 Meeting Room 510, Shunde Building   

【Speaker】 Annabelle Feng , McCombs School of Business, the University of Texas, USA   

【Host】Dr. Simin Huang   

【Title】 Integrating Dynamic Pricing and Replenishment Decisions under Supply Capacity Uncertainty 

【Abstract】 This paper examines the integrated decisions of pricing for uncertain demand and sourcing from uncertain supply, which are often studied separately in the literature. Our analysis of the integrated system suggests that the base stock list price policy fails to achieve optimality even under deterministic demand. Instead, the optimal policy is characterized by two critical values: a reorder point and a target safety stock. Under this policy, a positive order is issued if and only if the inventory level is below the reorder point. When this happens, the optimal order and price are coordinated to achieve a constant target safety stock, which aims at hedging stockout risk. An increased inventory level calls for a decreased price and a reduced order. The optimal decisions also reveal monotone properties with respect to model inputs, which provide guidance to design the integrated pricing and inventory strategy according to system characteristics. We further investigate the profit improvement obtained from deploying dynamic pricing, as opposed to static pricing, in our model. The sensitivity of the optimal decisions to the inventory level implies that the presence of supply uncertainties can induce a long-term profit improvement from dynamically adjusting the price according to the available inventory. Dynamic pricing also yields a larger benefit if purchasing or holding inventory is cheaper. Interestingly, such a benefit may be reduced when the uncertainties involved in the system become very high, or when the demand becomes highly price sensitive. The reduced benefit of dynamic pricing is due to two distinct effects. First, a very stringent supply resulting from the high uncertainties can limit the flexibility of price adjustment. Second, the supply restriction can be relaxed by optimally setting the price for the highly price-sensitive demand. When either effect becomes significant, the need to adjust the price is reduced. 

【Bio Sketch】 Annabelle Feng is an assistant professor at McCombs School of Business, the University of Texas. She received her Ph.D. in Operations Management from UT Dallas in 2006. Her main research interests are in various aspects of procurement and inventory planning including information dynamics, service level evaluation, supply unreliability, and pricing strategy. She also works on production and design outsourcing, incentive issues in contracting, and economic growth and consumption. She received the first prize in the 2009 INFORMS Junior Faculty Paper Competition. She is also a co-author of the 2009 Edelman Award winning project. 

Looking forward to your participation.