Joint pricing and procurement of fashion products in the existence of clearance markets |
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Authors: | M. Karakul |
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Affiliation: | aSchool of Administrative Studies, York University, 4700 Keele Street, Toronto, Ont., Canada M3J 1P3 |
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Abstract: | This paper focuses on the joint pricing and procurement of fashion products in the existence of clearance markets. It is assumed that the expected regular season demand is a linear decreasing function of the price and the end of period excess inventory is sold at a known discounted price in a clearance market where the demand is a random variable that follows a general distribution. It is shown that the expected profit function is unimodal and the optimal procurement quantity and price can be found from the first order conditions. Existence of a clearance market increases the profit, price, and the procurement quantity. In order to prove this, the optimal procurement and pricing policy of a price-setting retailer who does not have a clearance market is provided. As opposed to the literature, it is shown that the expected profit function of this problem is unimodal as well. A numerical study demonstrating the magnitude of the increase in profit, procurement quantity, and price is reported. |
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Keywords: | Newsvendor problem Pricing Fashion retail management Inventory control Clearance market |
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