Impact of Prices on Inventory Systems: Theory and Emerging Issues

Firms' inventory or production decisions are influenced by a variety of factors, including both the selling price of the end products and the purchasing cost of raw materials. In most cases, there is a strong connection between purchasing costs and selling prices. In my dissertation, I study the impact of prices on a firm's inventory decisions, particularly in systems with delivery lead time and environmental concerns. The findings are reported in three studies. The first study analyzes the joint inventory and pricing problem with lead time, which is known to be difficult to solve due to its computational complexity. We develop a simple heuristic to resolve the computational issue and reveal the impact of lead time on the joint decisions. In the second study, we extend the heuristic approach in the previous study to systems with both positive lead time and fixed ordering costs. The effectiveness of the heuristic in both studies are verified through both theoretical bounds and numerical experiments. In the third study, we examine the effect of the procurement cost and its volatility on a firm's profit. This allows us to study under what conditions a firm can profitably operate an eco-friendly supply chain. Our study also helps the firms to understand what type of products would better absorb the higher costs associated with an eco-friendly production system.