TY - JOUR
T1 - Application of optimal control theory to product pricing and warranty with free replacement under the influence of basic lifetime distributions
AU - Lin, Pei Chun
AU - Shue, Li Yen
N1 - Funding Information:
The authors gratefully acknowledge the helpful comments of the associate editor and anonymous referee. This work was supported by the National Science Council of the Republic of China in Taiwan under grants NSC 91-2213-E-327-011.
PY - 2005/1
Y1 - 2005/1
N2 - This study investigates optimal policies for determining price and warranty length when free replacement of defective items is the business policy and the demand is dependent on price, warranty, and cumulative sales. We apply optimal control theory to a profit-maximization model that takes into consideration the expected warranty cost per item. The maximization of market values is based on a pre-determined life cycle and spans across both expansion and saturation phases of the market. We further investigate the optimal policies for a number of basic lifetime distributions, when the demand function is under the setting of separable and logistic growth. We found that as the growth of a product enters different phases of the market, optimal decision policies are characterized by simultaneously increasing or reducing both price and warranty length.
AB - This study investigates optimal policies for determining price and warranty length when free replacement of defective items is the business policy and the demand is dependent on price, warranty, and cumulative sales. We apply optimal control theory to a profit-maximization model that takes into consideration the expected warranty cost per item. The maximization of market values is based on a pre-determined life cycle and spans across both expansion and saturation phases of the market. We further investigate the optimal policies for a number of basic lifetime distributions, when the demand function is under the setting of separable and logistic growth. We found that as the growth of a product enters different phases of the market, optimal decision policies are characterized by simultaneously increasing or reducing both price and warranty length.
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U2 - 10.1016/j.cie.2004.07.009
DO - 10.1016/j.cie.2004.07.009
M3 - Article
AN - SCOPUS:10844293463
SN - 0360-8352
VL - 48
SP - 69
EP - 82
JO - Computers and Industrial Engineering
JF - Computers and Industrial Engineering
IS - 1 SPEC. ISS.
ER -