Joint Pricing and Production Control for a Manufacturer With Volume Flexibility

We consider a make-to-stock manufacturer that produces a single product and sells it through two different channels, one local and the other contractual. We determine how to manage production and pricing in the local channel in order to maximize the total expected discounted profit earned over an infinite time horizon. We characterize the optimal policy as comprising a base stock level for production control and a collection of thresholds for product pricing in the local channel.

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