<p>To leverage the cost reduction resulting from the learning effect, firms often increase production in the first period and carryover the unsold products to the second period for continued sales. Previous academic literature generally postulated that inventory carried over from the preceding period could serve as perfect substitutes for newly produced products. However, the carried products often experience quality deterioration in practice. In this paper, we construct a two-period production and sales model that operates under a dynamic pricing framework with considering quality deterioration and stochastic learning effect. The findings demonstrate that firms will maintain inventory holdings when the inventory holding cost falls below a specified threshold value. It is worth emphasizing that this threshold becomes negative when the deterioration level for the inventory is relatively high no matter what the value of the inventory holding cost is. Moreover, the firm consistently derive benefits from higher values of the mean and standard deviation pertaining to the learning effect while harms by the deterioration level (when inventory exists). Finally, numerical examples are employed to analyze how key parameters influence the firm’s pricing and production decisions and to explore the advantages associated with the inventory carryover option.</p>