The value of updated information on future price behaviour

Abstract

This paper studies the value of information on future price behaviour. We consider a one-period inventory modelling framework with random period length and two order opportunities. The selling price is determined dynamically and the demand is price-sensitive. The second ordering-pricing decision reflects the updated information on future price behaviour on supply chain flexibility. We consider three models with different levels of flexibility: the static model, the quantity flexible model and the combined quantity and timing (fully) flexible model. We compare between the values of three different features in the supply chain: updated information on price behaviour, dynamic pricing and supply flexibility. And we demonstrate the effect of holding cost and demand uncertainty on these three values. We also consider a specific condition with fixed selling prices. We give explicit analysis on the optimal order decisions, and analytically show the impact of information and quantity flexibility on the optimal order decisions.