Seray Aydın, Fikri Karaesmen and Yalçın Akçay. On the Structural Properties of the Inventory Control Problem with Revenue Management and Pricing Applications

Abstract. This paper studies a finite horizon, single product inventory control problem in which the decision-maker accepts or rejects customer requests coming from multiple demand classes. Customer requests can be for multiple units of the product (batch orders) and we allow partial fulfillment of demand for accepted requests. The optimal decision depends on factors such as the available inventory, relative profitability of demand classes, projected volume and mix of future demand (distribution of future demand), and time to go till the end of the time horizon. The decision-maker’s problem is reformulated as a stochastic dynamic programming model by using individual event operators.  It is by now well known that the optimal policy is of threshold type. The optimal thresholds clearly depend on problem parameters such as demand distributions, revenues, etc. The effect of changes in these system parameters on the optimal policy is analyzed in order to understand how the system responds to such variations. It is shown that understanding the parameters effects on the structural properties is a key in designing admission policies.