Optimal pricing and inventory policy with delayed payments and order cancelations

Considering a periodic review system where the seller allows customers´ delayed payments, referred to as cash-on-delivery payment scheme, we investigate the seller´s optimal pricing and inventory control policy. Specifically, we examine the impact of customers´ order cancelations, possibly due to their expectation of price markdown in the future. Under mild conditions, we show that the base-stock list price policy is optimal. We also investigate the impact of the customers´ strategic behavior of order cancelation and their price sensitivity on the optimal retail price and inventory policy.