A joint dynamic pricing and advertising model for deteriorating items with product interoperability and ethylene effect

ABSTRACT

This paper investigates the joint dynamic pricing and advertising problem for deteriorating items. A concept of ethylene effect for deteriorating items is proposed. We formulate a model that integrates three dynamics composed of dynamic pricing, dynamic advertising, dynamic decay rate. In addition, the demand rate is mainly influenced by price, advertising and interoperability. The research consists of two parts. The first part deals with static strategy in the context of constant price, whereas the second taps into dynamic strategy based on time-varying price. The analytical solutions of the optimal joint problem are mainly obtained by Pontryagin's maximum principle. The results show that static strategy reflects more superiority than dynamic strategy when it comes to profits. Furthermore, numerical examples are provided to demonstrate the validness of theoretical results, and some instructive insights in operations management for deteriorating items are presented.

KEYWORDS:

• Dynamic pricing
• advertising
• deteriorating items
• interoperability
• ethylene effect

Acknowledgments

The authors would like to thank the reviewers for their valuable comments and constructive suggestions which have improved the quality of this paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Minghui Xu

Minghui Xu is a Ph.D. candidate at School of Management, Jinan University, Guangzhou, China. His research interests include supply chain management, pricing and revenue management, and inventory control.

Xiaode Zuo

Xiaode Zuo is currently a professor at School of Management, Jinan University, Guangzhou, China. His research interests lie in systems optimization and management decision, e.g. production planning optimization, logistics, inventory management and project management. He has published several research papers in the journals like Journal of Systems Engineering and Electronics, Journal of systems Science and Information, Journal of Intelligent Information Management Systems and technologies, Systems Engineering-Theory & Practice, Journal of Industrial Engineering and Engineering Management, Journal of Systems Science and Systems Engineering, etc.

Ying Mi

Ying Mi is a lecturer at Guangdong University of Foreign Studies South China Business College, Guangzhou, China. She received her master's degree in Hunan Agricultural University. Her research interests include English language teaching and cross-culture communication.