Dynamic pricing model with logarithmic demand

The demand of an item depends on time and price both. For example, electric fan in winter season has low demand than summer. The competing company with lower price gets benefit of better sale during this season. The offer of discount in price of product is an effective tool to increase the demand in the declining market. In this paper, we develop a dynamic pricing model for the product having logarithmic decline price sensitive demand. A useful solution procedure is presented to determine the optimal number of price settings and respective selling price. It proved there exist an optimal number of price settings to provide optimal profit for varying business setup. Results are supported by a numerical example and a computational procedure is appended to illustrate the performance of the model. It is shown that the dynamic pricing policy has better performance over the static pricing policy. © 2012 Operational Research Society of India.