Profit maximization in a multi-product firm with impatient customers
Journal of the Operational Research Society
Delivery lags, Economics, Inventory, Manufacturing, Multi-product, Pricing
In this paper, the standard model of profit maximization is extended to include multi-product production in a market characterized by impatient customers. A formal model is presented that includes price, delivery frequency, production run length per set-up and product range as endogenous variables. The model facilitates the analysis of the complex interactions between these variables and highlights the inherent problems relating to profit maximization. For example, offering a broader range of products and/or more rapid delivery may seem to be a sensible response for a multi-product firm with impatient customers in a scenario of depressed demand. However, the analysis shows that such strategies could be counterproductive.
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Levin, E. J., Ma, Y., & Wright, R. E. (2004). Profit maximization in a multi-product firm with impatient customers. Journal of the Operational Research Society, 55(3), 211-218. doi: 10.1057/palgrave.jors.2601674