Dynamic Pricing Under Economic Ordering and Strategic Customers with Forward Buying and Postponement

Abstract

Dynamic pricing is an instrument to achieve operational efficiency in inventory management. We consider an economic ordering context with strategic customers who forward-buy or postpone their purchases in anticipation of price changes. By charging a lower price when inventories are high, significant profit improvements can be achieved. The paper analyzes a simple EOQ-type model with a single price change within each inventory cycle. Numerical examples illustrate its impact on profits, order cycle duration and optimal price discounts. In particular for slow moving and low margin products, improvements in retail-type environments are substantial.