Optimal pricing policy for deteriorating items with preservation technology investment

This paper considers the problem of simultaneously determining theprice and inventory control strategies for deteriorating items. Itis assumed that the rate of deterioration can be reduced by means ofeffective preservation technology investment and the demand rate isa function of selling price. The goal of this study is to maximizethe total profit per unit time by simultaneously determining theoptimal selling price, length of replenishment cycle andpreservation technology investment. First, for a given preservationtechnology investment, we prove that the optimal selling price andthe optimal length of replenishment cycle exist and are unique.Next, it is shown that the total profit per unit time is a concavefunction of the preservation technology investment. Then, aneffective algorithm is designed to find the optimal joint policy.Finally, numerical examples to illustrate the solution procedure andsome managerial implications are provided.