Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

11-2009

Publication Source

Operations Research

Volume

57

Issue

6

Start Page

1438

Last Page

1450

DOI

10.1287/opre.1080.0645

Abstract

We consider a revenue-maximizing make-to-order manufacturer that serves a market of price- and delay-sensitive customers and operates in an environment in which the market size varies stochastically over time. A key feature of our analysis is that no model is assumed for the evolution of the market size. We analyze two main settings: (i) the size of the market is observable at any point in time; and (ii) the size of the market is not observable and hence cannot be used for decision making. We focus on high-volume systems that are characterized by large processing capacities and market sizes, and where the latter fluctuate on a slower timescale than that of the underlying production system dynamics. We develop an approach to tackle such problems that is based on an asymptotic analysis and that yields near-optimal policy recommendations for the original system via the solution of a stochastic fluid model.

Keywords

revenue management, dynamic pricing, market uncertainty, queueing, state-dependent queues, asymptotic analysis

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Date Posted: 27 November 2017

This document has been peer reviewed.