Optimal ordering and pricing policy with supplier quantity discounts and price-dependent stochastic demand

Abstract

We study a joint ordering and pricing problem for a retailer whose supplier provides all-unit quantity discount for the product. Both generalized disjunctive programming model and mixed integer nonlinear programming model are presented to formulate the problem. Some properties of the problem are analysed, based on which a solution algorithm is developed. Two numerical examples are presented to illustrate the problem, which are solved by our solution algorithm. Managerial analysis indicates that supplier quantity discount has much influence on the ordering and pricing policy of the retailer and more profit can be obtained when the supplier provides quantity discount.

Keywords:

• newsvendor
• pricing
• quantity discount
• ordering
• uncertain demand

AMS Subject Classifications::

• 90B05
• 90C11
• 90C30

Acknowledgements

This research is partially supported by the Discovery Grants of Natural Sciences and Engineering Research Council of Canada, China State Scholarship Fund, and Strategic Research Grant of City University of Hong Kong number 7002635. The authors thank the anonymous reviewers for their comments and suggestions that helped improve this article.