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Inventory management under price-based and stockout-based substitution

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  • Transchel, Sandra

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.

Suggested Citation

  • Transchel, Sandra, 2017. "Inventory management under price-based and stockout-based substitution," European Journal of Operational Research, Elsevier, vol. 262(3), pages 996-1008.
    • Handle: RePEc:eee:ejores:v:262:y:2017:i:3:p:996-1008
    DOI: 10.1016/j.ejor.2017.03.075
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