Dynamic pricing model of deteriorating items based on revenue management

Based on revenue management, dynamic pricing model of deteriorating items is studied. Firstly, the feasibility of the application of revenue management in dynamic pricing of deteriorating items and the character of the time to deterioration is represented. In order to gain maximum expected revenue, dynamic pricing model of deteriorating items is proposed, which is a continuous-time revenue management model based on a set of discrete price levels. Then we show a subset of these prices which forms a concave envelope is potentially optimal, and draw the optimal solution by dynamic programming recursions. Finally, we find items deterioration is influential to the optimal solution. When the items are deteriorating, it is better to sell them in a relative low price and depend on the deteriorating rate, and the high, it should be sold as early as possible. Then a numerical example is provided.