Strategic inventory of original products amid new product launches

Chenglin Ma, Hubert Pun and Ruiqing Zhao

European Journal of Operational Research, 2026, vol. 329, issue 3, 878-889

Abstract: Some suppliers adopt a single rollover strategy to periodically introduce new or updated products while phasing out the original versions; however, their retailers may strategically carry the discontinued old products after the launch of the new product. This paper demonstrates the interaction between product innovation and strategic inventory in a bilateral monopoly framework. We model a supplier that sequentially sells two product versions (original and updated) to a retailer in two periods. The supplier determines the innovation level of updated products, and the retailer may carry original products which are exclusively supplied in period 1 to period 2. We find that increased inventory holding costs, which reduce the retailer's incentive to stock the original product, may negatively impact innovation for the updated product but benefit the supply chain members. In addition, due to the supplier’s ability to innovate, the retailer's strategic inventory leads to an uncommon lose-lose situation for both the supplier and the retailer when the inventory holding cost is high, a result which deviates from the strategic inventory literature. Our research suggests that policymakers should use appropriate inventory taxes and subsidies to maintain moderate inventory holding costs in order to foster innovation. Moreover, suppliers should strategically manage retailer inventory costs through customized storage and subsidy contracts to maximize profitability. Lastly, to avoid the lose-lose scenario caused by strategic inventory, supply chain members should consider arranging prior commitments to not hold inventory or employ the use of Vendor Managed Inventory (VMI).

Keywords: Supply chain management; Product innovation; Strategic inventory (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221725006897
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:329:y:2026:i:3:p:878-889

DOI: 10.1016/j.ejor.2025.08.052

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().