Optimal Pricing and Return Policies for Perishable Commodities

Citation
Pasternack, Barry Alan, Optimal Pricing and Return Policies for Perishable Commodities, Marketing science , 4(2), 1985, pp. 166-176
Journal title
ISSN journal
07322399
Volume
4
Issue
2
Year of publication
1985
Pages
166 - 176
Database
ACNP
SICI code
Abstract
This paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life. A hierarchical model is developed, and the results of the single period inventory model are used to examine possible pricing and return policies. The paper shows that several such policies currently in effect are suboptimal. These include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted. The paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination, but that the optimal return allowance will be a function of retailer demand. Therefore, such a policy cannot be optimal in a multi-retailer environment. It is proven, however, that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi-retailer environment.