A. Toptal; "Analysis of Time-to-Exit the Market under Declining...",
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IE-OPIM Joint Research Seminar Series 2009-20101
Room: FMAN 1073
Date/Time: March 24th, 2010, 13:40-14:40

Analysis of Time-to-Exit the Market under Declining Economic Value

Ayşegül Toptal
Bilkent University, Industrial Engineering

In recent years, there has been an increased use of dynamic pricing policies in retail industries for balancing demand and supply. The focus of the literature in this area has been to determine the structure of the dynamic pricing policy given the inventory level and the length of the selling period. In this paper, we consider a retailer facing stochastic demand for a product and study the optimal time-to-exit the market given an initial inventory level. Two important characteristics of this system are: (i) there are planned reductions on the retail price over time, (ii) the demand arrival process follows a Nonhomogenous Poisson distribution with intensity that is dependent on both the retail price and time. We first derive a general expression for the retailer's expected profits, which we later simplify for the special case of Poisson demand arrivals. Our numerical analysis reveals that significant savings can be achieved by carefully deciding the value of time-to-exit the market. We further show that there exists an optimal value of time-to-exit the market after which the expected profits are nonincreasing. We also analyze the underlying replenishment problem for a given length of the selling period and provide insights about optimal market exit times under different market conditions.

Ayşegül Toptal is an assistant professor of Industrial Engineering at Bilkent University, Turkey. She holds a Ph.D. (2003) in Industrial Engineering from Texas A&M University, College Station. Her research interests include supply chain management, inventory theory, and production scheduling. Some of her current research is supported by The Scientific and Technological Research Council of Turkey. She has published in European Journal of Operational Research, IIE Transactions, International Journal of Production Research and Naval Research Logistics 1 Co-organizers: Murat Kaya (IE) mkaya@sabanciuniv.edu, Çağrı Haksöz (OPIM) cagrihaksoz@sabanciuniv.edu