E‐retailer's dynamic inventory and pricing policy with price‐protection services

This paper investigates a coordinated inventory and pricing problem with the e‐retailer's price‐protection service over multiple periods. By solving a stochastic dynamic programming in the two‐dimensional state space, the optimal policy is fully characterized. Specifically, the inventory policy is a previous price‐dependent base‐stock policy. The pricing policy: as the previous price increases, the optimal current price stays unchanged first, then increases, and finally decreases. Numerical results indicate that with the impact of the price‐protection service increasing, the base‐stock level and current price rise under some conditions. Moreover, the price‐protection service benefits the e‐retailer when its impact is large enough.