A stochastic inventory model with price quotation

At the beginning of a period, an inventory manager has to decide, considering the current inventory level, whether a price should be searched for at a non-zero cost. Once the price is known, she will have to decide the order size.

For tractability the number of realizable prices is limited to two and ( r , S 1 , S 2 )-type policies are considered, where r is the threshold for the price search decision and S i is the order-up-to level for price p i for i = 1, 2. Although the problem is significantly simplified, it still allows for price speculations by the inventory manager; i.e., she requests a quote but may not buy. The properties of long-run average costs are studies and optimization algorithms are presented.