Now Playing: DVD Purchasing for a Multilocation Rental Firm

Opher Baron (), Iman Hajizadeh () and Joseph Milner ()
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Opher Baron: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
Iman Hajizadeh: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
Joseph Milner: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada

Manufacturing & Service Operations Management, 2011, vol. 13, issue 2, 209-226

Abstract: This paper studies the problem of purchasing and allocating copies of movies to multiple stores of a movie rental chain. A unique characteristic of this problem is the return process of rented movies. We formulate this problem for new movies as a newsvendor-like problem with multiple rental opportunities for each copy. We provide demand and return forecasts at the store-day level based on comparable movies. We estimate the parameters of various demand and return models using an iterative maximum-likelihood estimation and Bayesian estimation via Markov chain Monte Carlo simulation. Test results on data from a large movie rental firm reveal systematic underbuying of movies purchased through revenue-sharing contracts and overbuying of movies purchased through standard (nonrevenue-sharing) ones. For the movies considered, our model estimates an increase in the average profit per title for new movies by 15.5% and 2.5% for revenue sharing and standard titles, respectively. We discuss the implications of revenue sharing on the profitability of the rental firm.

Keywords: service operations; supply chain management; inventory theory and control (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:13:y:2011:i:2:p:209-226

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