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      Bundle pricing of inventories with stochastic demand

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      Author
      Bulut, Z.
      Gürler, U.
      Şen, A.
      Date
      2009
      Source Title
      European Journal of Operational Research
      Print ISSN
      0377-2217
      Electronic ISSN
      1872-6860
      Publisher
      Elsevier
      Volume
      197
      Issue
      3
      Pages
      897 - 911
      Language
      English
      Type
      Article
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      194
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      Abstract
      We consider a retailer selling a fixed inventory of two perishable products over a finite horizon. Assuming Poisson arrivals and a bivariate reservation price distribution, we determine the optimal product and bundle prices that maximize the expected revenue. Our results indicate that the performances of mixed bundling, pure bundling and unbundled sales strategies heavily depend on the parameters of the demand process and the initial inventory levels. Bundling appears to be most effective with negatively correlated reservation prices and high starting inventory levels. When the starting inventory levels are equal and in excess of average demand, most of the benefits of bundling can be achieved through pure bundling. However, the mixed bundling strategy dominates the other two when the starting inventory levels are not equal. We also observe that an incorrect modeling of the reservation prices may lead to significant losses. The model is extended to allow for price changes during the selling horizon. It is shown that offering price bundles mid-season may be more effective than changing individual product prices.
      Keywords
      Pricing
      Revenue management
      Bundling
      Permalink
      http://hdl.handle.net/11693/22622
      Published Version (Please cite this version)
      http://dx.doi.org/10.1016/j.ejor.2006.09.106
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      • Department of Industrial Engineering 677
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