Optimal firm's policy under lead time-and price-dependent demand: interest of customers rejection policy

TL;DR

This paper examines whether implementing a client rejection policy in a lead-time and price-sensitive demand setting can enhance profitability, comparing models with and without rejection options through analytical analysis.

Contribution

It provides a comparative analysis of rejection versus acceptance policies in lead-time and price-dependent demand environments, highlighting conditions for profitability.

Findings

Rejection policy can increase profit under certain demand conditions.

Analytical comparison between M/M/1/1 and M/M/1 models.

Insights into cost impacts on policy effectiveness.

Abstract

Considering a lead-time-and price-sensitive demand, we investigate whether a client rejection policy, modeled as M/M/1/K system, can be more profitable than an all-client acceptance policy, modeled as M/M/1 system. We provide analytical insights for the cases with and without holding and penalty costs by comparing M/M/1/1 to M/M/1 models.