Inventory management under price-based and stockout-based substitution

Sandra Transchel

European Journal of Operational Research, 2017, vol. 262, issue 3, 996-1008

Abstract: We examine a stochastic inventory and pricing problem for a firm that sells two vertically differentiated products. The demands for the two products are determined by total (random) market size and the customers’ net utility from buying the two products, which is determined by the products’ quality attributes, the individual quality valuation (unknown to the firm), and the selling prices. In case the preferred product is out of stock, customers may be willing to buy a substitute instead, if their net utility is non-negative. Therefore, we analyze an inventory and pricing model, considering price-based and stockout-based substitution.

Keywords: Inventory; Pricing; Customer substitution; Discrete choice model (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:262:y:2017:i:3:p:996-1008

DOI: 10.1016/j.ejor.2017.03.075

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