A Joint Location-inventory-pricing Problem With Market Cannibalization

This paper studies a joint location-inventory-pricing problem with cannibalizationof new products sales by remanufactured products. Based on a facility location problem,inventory factor and pricing decision are considered. New products and remanufacturedproducts are supplied together in this supply chain with price-dependent demands,which not only depend on self-price, but also the other one. In this problem, revenuemanagement is the objective, and the effect of market cannibalization to the supplychain operation is discussed.To this location-inventory-pricing problem, a model is built and is applied in twosituations, simple cannibalization and form-U cannibalization. Simple cannibalizationmeans the coefficient of cannibalization is fixed and not affected by the change of theratio of the prices, and form-U cannibalization refers to the shape of the coefficient ofcannibalization changing with the increasing of price discount is like an invertedU-shape. According to price discretization and model reconstruction, finally, a conicquadratic mixed-integer program is built, and some extended polymatroid inequalitiesare added to improve the computational efficiency.By numerical experiments, the valid of the model and algorithm is confirmed. Theresult shows that the total revenue with cannibalization assumption is larger than thatwithout cannibalization, and delivery decision is different. To simple model, largercoefficient of cannibalization means more revenue and higher price decision, and toform-U model, increasing price discount leads to inverted U-shape revenue and changeslocation and delivery decisions.