Sequential and Dynamic Decisions on Sales Price and Accepting the Customer’s Demand by Markov Decision Process

Abstract

In this article, decisions about price and stock allocation for a seller with multiple customer classes are analyzed. With each customer arrival, the seller needs to decide about accepting or rejecting the customer's demand by considering the stock on hand. In the case of acceptance, one needs to decide about the selling price. After any change in the inventory level, decision about continuing or stopping the production is needed. The seller faces a sequential and dynamic decision making problem, which is modeled by the Markov decision process and the optimal policy is determined. Finally, the impact of optimal policy on the seller's profit is investigated by a numerical analysis.