A Computational Approach for Optimal Joint Inventory-Pricing Control in an Infinite-Horizon Periodic-Review System

This note considers a joint inventory-pricing control problem in an infinite-horizon periodic-review system. Demand in a period is random and depends on the posted price. Besides the holding and shortage costs, the system incurs inventoryreplenishment costs that consist of both variable and fixed components. At the beginning of each period, a joint inventory and pricing decision is made. Under the long-run average profit criterion, we show that an optimal policy exists within the class of so-called (s, S, p) policies. This is established based on our algorithmic development, which also results in an algorithm for finding an optimal (s, S, p) policy.