We consider an inventory pricing problem with random demand for products whose quality levels are random. The firm has several alternatives for pricing such inventories. Full inspection of the items may reveal their quality levels which enables individual pricing or group pricing. Alternatively, the firm may forego the inspection, set a single price and let the customers choose with the possibility of a price update over time. Assuming that customers choose the higher quality items first, the remaining items are of lower quality.

This motivates a dynamic pricing policy where the firm observes the sales and infers the quality level of the remaining inventory to adjust the price. We analyze and compare these alternative pricing policies and assess the benefits of dynamic pricing in this environment.

Joint work with Yalcin Akcay, Koc University