Centralized and Competitive Inventory Models with Demand Substitution

Serguei Netessine () and Nils Rudi ()
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Serguei Netessine: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Nils Rudi: W. E. Simon Graduate School of Business, University of Rochester, Rochester, New York 14627

Operations Research, 2003, vol. 51, issue 2, 329-335

Abstract: A standard problem in operations literature is optimal stocking of substitutable products. We consider a consumer-driven substitution problem with an arbitrary number of products under both centralized inventory management and competition. Substitution is modeled by letting the unsatisfied demand for a product flow to other products in deterministic proportions. We obtain analytically tractable solutions that facilitate comparisons between centralized and competitive inventory management under substitution. For the centralized problem we show that, when demand is multivariate normal, the total profit is decreasing in demand correlation.

Keywords: Inventory/production; stochastic; multiproduct: substitution; Games/group decisions; noncooperative: Nash equilibrium (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (151)

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