Pricing Policies for Perishable Products with Demand Substitution

This paper studies optimal pricing policies for a family of substitute perishable products with demand correlation. Potential buyers arrive according to an exogenous stochastic Poisson process. At each demand epoch, the arriving customer observes the set of substitute products for which there is still inventory available together with their corresponding prices. Based on this information, the customer either buys one of the available products at the posted price, or leaves the system without making any purchase. We propose a simple choice model to capture buyers’ purchasing behavior from which a price-sensitive demand function is derived. In this context, we study the seller’s problem of optimally selecting a pricing policy that maximizes expected cumulative revenues over a finite selling horizon.