Business Commons^™

A Comparison Of Different Demand Models For Joint Inventory-Pricing Decisions, John Wilson, Leo Macdonald, Chris Anderson

Leo MacDonald

Pricing and inventory research often focuses on stylized models to illustrate pricing and ordering decision dynamics. Although decision insight is useful, the individual retailer faces tougher decisions on actually modeling demand. In an effort to understand the impact of demand modeling choices on inventory and pricing decisions, we evaluated different price-dependent demand models and the resulting profit produced through their implementation. To avoid complications created by other demand drivers, for example promotional and advertising activities, we illustrate the impacts with data from a name-your-price retailer selling a commoditized product where price is the key driver. As our data are provided …