Pricing Policy with Time and Price Dependent Demand for Deteriorating Items

Abstract

The market of a product is stochastic in nature, especially in terms of demand and price. If demand is high in short span of time, the price also rises proportionately, but demand highly depends on consumer's need. In diminishing market, demand of a product decreases and due to this, product may disappear altogether from the market. One can opt out and reduce the selling price and generate excess demand to earn more and to establish the product in market. In competitive environment, the strategy is also applicable in entering into competition with others. The objectives of present paper are to develop a dynamic pricing policy to solve such types of problems in a diminishing market. The problem is solved by coming to terms with 'Kuhn Tucker imperatives and modalities', in this regard. A simulation study is appended to measure the effect of various parameters on optimal policy. The analysis reveals that for every business setup, there will be an optimal number of price settings for dynamic pricing policy that outperforms the static pricing policy.