Pricing decision within an inventory model for complementary and substitutable products

Abstract

A combination of substitutable and complementary products is very important for any business industry to make all-round profit from different aspects. How deterioration affects complementary products or substitutable products is discussed in this study. This study investigates the pricing and inventory decisions for complementary and substitutable items which are deteriorating in nature. Four models are analyzed where the demand of one product is dependent upon the selling price and the price of another product. This paper tries to compute the optimum prices and order quantities to optimize the total profit, which is the main aim. Theoretically, this model is solved by a classical optimization method. Numerical examples demonstrate the applicability of this model. Results conclude that the total profit is dependent on the degree of substitutability and complementarity. A sensitivity analysis of optimal solutions is given to test the stability of the proposed model.