Joint Pricing and Inventory Decision for Competitive Products

We consider the joint pricing and inventory decision problem for a single retailer who orders, stocks and sells multiple products. The products are competitive in nature, e.g., these maybe similar products from multiple brands. Demand for a product depends on its price as well as the price of all competing products. We show that the optimal pricing and inventory policy is similar to the base-stock, list-price policy which is known to be optimal for the single product case. In addition, the base-stock level of each product is nonincreasing with the inventory level of other products. This structure suggests that one can improve profit by simultaneously managing all the products rather than managing each product independently of other products. Thesis Supervisor: David Simchi-Levi Title: Professor of Engineering Systems and Civil and Environmental Engineering Acknowledgments I want to thank my advisor Prof. David Simchi-Levi for his continuous support and guidance throughout my research. I also want to thank all my friends in MIT. Huiling, Vinh, Premal, Theta, Miao, Jie... Just to name a few. I not only shared a lot of fun with you but also learnt a lot and gained strength from your support. Finally I want to thank my parents for their trust in me through good and bad times.