A Robust Optimization Approach to Dynamic Pricing and Inventory Control with no Backorders

In this paper, we present a robust optimization formulation for dealing with demand uncertaintyin a dynamic pricing and inventory control problem for a make-to-stock manufacturing system. Weconsider a multi-product capacitated, dynamic setting. We introduce a demand-based fluid modelwhere the demand is a linear function of the price, the inventory cost is linear, the production cost isan increasing strictly convex function of the production rate and all coefficients are time-dependent.A key part of the model is that no backorders are allowed. We show that the robust formulation isof the same order of complexity as the nominal problem and demonstrate how to adapt the nominal(deterministic) solution algorithm to the robust problem. ∗Operations Research Center, MIT, [email protected]†Sloan School of Management, MIT, [email protected]