A two period lot sizing and pricing model for a perishable/seasonal item

In this study, we develop a two-period model for determining the lot size, period-one price and the rule for setting period-two price. The proposed model is applicable to lot sizing and pricing of a perishable or seasonal good when demand for the good is uncertain. In case of a perishable good, the retailer is assumed to follow a fixed replenishment interval which is assumed to be shorter than the fixed lifespan of the product. The interval in turn is divided into two periods. We represent demand in each period using an additive error demand function where expected demand is a decreasing function of the selling price. Consumers prefer fresh products and a farther 'best before' date, i.e., when a good is perishable, there tends to be value drop as units age over the periods. In case of a seasonal good, the planning horizon is the entire season and there may or may not be value drop over the two periods.