Integrating Pricing and Inventory Control : Is it Worth the Effort?

In this paper we first show that the gains achievable by integrating pricing and inventory controlare usually small for classical demand functions. We then introduce reference price models anddemonstrate that for this class of demand functions the benefits of integration with inventory controlare substantially increased due to the price dynamics. We also provide some analytical results forthis more complex model. We thus conclude that integrated pricing/inventory models could repeat thesuccess of revenue management in practice if reference price effects are included in the demand modeland the properties of this new model are better understood.