Dynamic Pricing and Inventory Management Under Fluctuating Procurement Costs

  title={Dynamic Pricing and Inventory Management Under Fluctuating Procurement Costs},
  author={Guang Xiao and Nan Yang and Renyu (Philip) Zhang},
  journal={ERN: Other Microeconomics: Production},
We consider a periodic review joint pricing and inventory control model in which a firm faces both stochastic demand and fluctuating procurement costs. To address procurement cost fluctuation, the firm adopts a dual-sourcing strategy, under which it procures from a spot market with immediate delivery and through a forward-buying contract with postponed delivery. Our analysis offers the unique insight that a risk-neutral firm may earn higher expected profit under a more volatile procurement cost… 
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