A joint dynamic pricing and advertising model for deteriorating items with product interoperability and ethylene effect

This paper investigates the joint dynamic pricing and advertising problem for deteriorating items. A concept of ethylene effect for deteriorating items is proposed. We formulate a model that integrates three dynamics composed of dynamic pricing, dynamic advertising, dynamic decay rate. In addition, the demand rate is mainly influenced by price, advertising and interoperability. The research consists of two parts. The first part deals with static strategy in the context of constant price, whereas the second taps into dynamic strategy based on time-varying price. The analytical solutions of the optimal joint problem are mainly obtained by Pontryagin's maximum principle. The results show that static strategy reflects more superiority than dynamic strategy when it comes to profits. Furthermore, numerical examples are provided to demonstrate the validness of theoretical results, and some instructive insights in operations management for deteriorating items are presented.