Model predictive control based integration of pricing and production planning

We witness an increased emphasis on the integration of different areas of manufacturing firms with the intention of avoiding suboptimal solutions. In particular, due to new technologies which make it easy to change the price of a product in real time, the integration of pricing and production planning may be garnering the most interest. We are proposing in this paper a way to model the dynamics of the price. Thus, the price and the inventory level are considered as state variables whereas the supply (production) rate is the control variable. The demand rate is dynamic and state-dependent. Using a model predictive control approach, the optimal supply rate, and thus the optimal price and inventory level, are obtained. Different examples are provided under different scenarios for the supply rate and for the demand rate.