Price and lead time decisions in dual-channel supply chains

Recent years have seen scores of retail and manufacturing companies exploring innovative pricing strategies in an effort to improve their operations and ultimately the bottom line. Firms are employing such varied tools as dynamic pricing over time, target pricing to different classes of customers, or pricing to learn about customer demand. The benefits can be significant, including not only potential increases in profit, but also improvements such as reduction in demand or production variability, resulting in more efficient supply chains.

Coordination of Pricing and Inventory Decisions: A Survey and Classification

Price, delivery time guarantees and capacity selection

Many service firms use delivery time guarantees to compete for customers in the marketplace. In this research we develop a stylized model to analyze the impact of using time guarantees on competition. Demands are assumed to be sensitive to both the price and delivery time guarantees, and the objective of each firm is to select the best price and time guarantee to maximize its operating profit. We first analyze the optimization problem for the individual firms and then study the equilibrium solution in a multiple-firm competition. Using a numerical study, we further illustrate how the different firm and market characteristics would affect the price and delivery time competition in the market. Our results suggest that the equilibrium price and time guarantee decisions in an oligopolistic market with identical firms behave in a similar fashion as the optimal solution in a monopolistic situation from a previous study. However, when there are heterogeneous firms in the market, these firms will exploit their distinctive firm characteristics to differentiate their services. Assuming all other factors being equal, the high capacity firms provide better time guarantees, while firms with lower operating costs offer lower prices, and the differentiation becomes more acute as demands become more time-sensitive. Furthermore, as time-attractiveness of the market increases, firms compete less on price, and the equilibrium prices of the firms increase as a result. Our findings provide important implications about firm behaviour under price and time competition.

Price and Time Competition for Service Delivery

A variety of mathematical forms have been developed to characterize demand functions which depend on a firm's operational and marketing activities. Such demand functions are being increasingly used by researchers in economics and different functional areas of business. We provide a comprehensive survey of commonly used demand models which depend on (i) price, (ii) rebate, (iii) lead time, (iv) space, (v) quality, and (vi) advertising. Our survey includes single firm–demand models in each category, as well as game theoretic multifirm models involving strategic interaction among the firms. We observe that certain types of functional forms, such as linear, power/iso-elastic, multinomial logit, and multiplicative competitive interaction, have been widely used to construct various demand models in all six categories, but that a large majority of publications deal with categories (i) and (v) of demand models. For each of the six categories, we survey relevant functional forms in the representative papers, and discuss the main properties, the advantages, the disadvantages, and comment on possible future research directions. We also present discussions of the applications of these analytical demand models in empirical studies. The article ends with a summary of our major findings.

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Demand functions in decision modeling : a comprehensive survey and research directions

This research examines the lead-time setting, capacity utilization, and pricing decisions facing a firm serving customers that are sensitive to quoted lead-times. We model the firm's operations as an M/M/1 queue and treat the demand as being linear in price and quoted lead-time. We analyze the quoted lead-time, capacity utilization, and price that maximize revenues less total variable production costs, WIP holding costs, and lateness penalty costs. We use this analysis to show that the capacity utilization should be lower when (1) customers are more sensitive to lead-times and/or (2) the firm incurs higher congestion related costs and/or (3) the penalty for lateness is higher. Further, we study the robustness of optimal profit contributions when the model parameters are mis-estimated.

Lead-time setting, capacity utilization, and pricing decisions under lead-time dependent demand

This research examines the lead-time setting, capacity utilization, and pricing decisions facing a firm serving customers that are sensitive to quoted lead-times. We model the firm's operations as an M/M/1 queue and treat the demand to be linear in price and quoted lead-time. We analyze the quoted lead-time, capacity utilization, and price that maximize revenues less total variable production costs, WIP holding costs, and lateness penalty costs. We use this analysis to show that the capacity utilization should be lower when 1) customers are more sensitive to lead-times; and/or 2) the firm incurs higher congestion related costs; and/or 3) the penalty for lateness is higher. Further, we study the robustness of optimal profit contributions when the model parameters are mis-estimated.

Kondalarao Palaka

Papers

Lead-time setting, capacity utilization, and pricing decisions under lead-time dependent demand

Lead-Time Setting, Capacity Utilization, and Pricing Decisions Under Lead-Time Dependent Demand