SUNConferences, Computers and Industrial Engineering 42

Font Size: 
Heuristics For Multi Period Competitive Pricing Strategies For Manufacturing Companies
Gursel Suer, Saikishore Pulugurtha, Douglas Adie

Last modified: 2012-06-25

Abstract


In this study, dynamic competition between two manufacturing companies is analyzed over four quarters in which the aggressive competitor is allowed to cut prices by 20% or 30% while the company can cut price by 10%, 20%, 30%, or do nothing. The competitive interaction between companies is based on Sweezy’s economic model, in which the competitor always has the first move and the response is instantaneous. There are various heuristics developed, such as “Beat’em”, ”Finish’em”, ”Match’em” and “Forget’em” to achieve maximum profit by price cuts over a year. The performance measure is total profit, which depends on revenue and total cost. The total cost consists of procurement cost, inventory carrying cost, labor cost, machine cost, utility cost and overhead cost. The methodology involves determining demand for our company for a given competitor price based on a log linear equation having cross elasticity of demand as coefficients. For every quantity demanded, a cellular manufacturing system is developed and a simulation is performed to obtain the revenue and cost. The heuristics are evaluated on the basis of total profit over a year and it is observed that “Finish’em” performs better than the other heuristics.


Full Text: PDF