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Optimal pricing and inventory policy with order cancelations under the cash-on-delivery payment scheme |
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| Authors: | Jie Zhang Baozhuang Niu Jianbin Li |
| Affiliation: | 1. School of Business Administration, Guangdong University of Finance and Economics, Guangzhou, 510320, China 2. Lingnan College, Sun Yat-sen University, Guangzhou, 510275, China 3. School of Management, Huazhong University of Science and Technology, Wuhan, 430074, China |
| Abstract: | Considering a periodic review system where the online seller allows the customers to pay when the products are delivered to them (referred as cash-on-delivery payment scheme in this paper), the authors investigate the seller’s joint pricing and inventory control policy with a finite planning horizon. In particular, the authors incorporate the customers’ possible order cancellation behavior with the cash-on-delivery scheme. It can be proven that the base-stock list price policy is optimal under mild conditions. The authors also analyze the impact of the customers’ forward looking behavior on the optimal policy. |
| Keywords: | Cash-on-delivery customer behavior dynamic programming joint price and inventory decisions |
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