Joint Inventory and Markdown Management for Perishable Goods with Strategic Consumer Behavior

Peng Hu (), Stephen Shum () and Man Yu ()
Additional contact information
Peng Hu: School of Management, Huazhong University of Science and Technology, Wuhan, China 430074
Stephen Shum: College of Business, City University of Hong Kong, Kowloon Tong, Kowloon, Hong Kong
Man Yu: School of Business and Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong

Operations Research, 2016, vol. 64, issue 1, 118-134

Abstract: In this paper we formulate and analyze a novel model on a firm’s dynamic inventory and markdown decisions for perishable goods. We consider a dynamic stochastic setting, where every period consists of two phases, clearance phase and regular-sales phase. In the clearance phase, the firm decides how much to order for regular sales, as well as whether to markdown some (or all) of the leftover inventory from the previous period that will be disposed otherwise. Since strategic consumers may buy the product during clearance sales for future consumption, markdown may cannibalize future sales at regular price. Hence, the firm needs to make a trade-off between product spoilage and intertemporal demand substitution. We show that the firm should either put all of the leftover inventory on discount or dispose all of it, and the choice depends on the amount of leftover inventory from the previous period. In particular, the firm should introduce markdown when the amount of leftover inventory is higher than a certain threshold, and dispose all otherwise. We also conduct numerical studies to further characterize the optimal policy, and to evaluate the loss of efficiency under static policies when compared to the optimal dynamic policy.

Keywords: revenue management; inventory; markdown; intertemporal substitution (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.2015.1439 (application/pdf)

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:inm:oropre:v:64:y:2016:i:1:p:118-134

Access Statistics for this article

More articles in Operations Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().