Optimal production and pricing strategies in a dynamic model of monopolistic firm

DOI10.1007/S13160-016-0235-7MaRDI QIDQ2396900zbMATH OpenOpenAlexFDO

Authors Georgii Mironenko, D. B. Rokhlin

Publication date 29 May 2017

Published in Japan Journal of Industrial and Applied Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1601.04264

zbMATH Keywords

constrained viscosity solutionpricingstate constraintsinventoryproductionnon-convex production cost

Mathematics Subject Classification ID

Production theory, theory of the firm (91B38) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Microeconomic theory (price theory and economic markets) (91B24)

Abstract: We consider a deterministic continuous time model of monopolistic firm, which chooses production and pricing strategies of a single good. Firm's goal is to maximize the discounted profit over infinite time horizon. The no-backlogging assumption induces the state constraint on the inventory level. The revenue and production cost functions are assumed to be continuous but, in general, we do not impose the concavity/convexity property. Using the results form the theory of viscosity solutions and Young-Fenchel duality, we derive a representation for the value function, study its regularity properties, and give a complete description of optimal strategies for this non-convex optimal control problem. In agreement with the results of Chazal et al. (2003), it is optimal to liquidate initial inventory in finite time and then use an optimal static strategy. We give a condition, allowing to distinguish if this static strategy can be represented by an ordinary or relaxed control. The latter is related to production cycles. General theory is illustrate by the example of a non-convex production cost, proposed by Arvan and Moses (1981).

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Cited in

(3)

• Optimal production-sales strategies for a company at changing market price
• A Dynamic activity analysis for a monopolistic firm
• scientific article; zbMATH DE number 1069798 (Why is no real title available?)

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