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A Note on Lerner Index, Cross-Elasticity and Revenue Optimization Invariants

Alexander Kushkuley (kushkuley***at***gmail.com)
Su-Ming Wu (su-ming.wu***at***oracle.com)

Abstract: We study common properties of retail pricing models in a general framework of calculus of variations. In particular, we observe that for any demand model, optimal de-seasoned revenue rate divided by price elasticity is time invariant. We also obtain a generalization of a well known inverse relationship between price elasticity of demand and Lerner index. These invariance results are illustrated by two contrasting examples of markdown optimization and optimal continuous replenishment

Keywords: variational methods, (cross-)elasticity of demand, inventory effect, Lerner index, markdown optimization

Category 1: Applications -- OR and Management Sciences

Category 2: Nonlinear Optimization


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Entry Submitted: 01/30/2014
Entry Accepted: 01/31/2014
Entry Last Modified: 02/01/2014

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