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Entry timing in a secondary market: When to trade?

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  • Yan, Tingting
  • Dooley, Kevin J.

Abstract

In volatile, long-lead time and short selling-season markets, a secondary market enables buyers to update their inventory during the selling season. The decision of when to update involves complicated trade-offs between forecast accuracy, expected lost sales, and average purchasing cost. We use a two-stage inventory replenishment model to identify the optimal trading time across different scenarios. Across most scenarios the optimal trading time is around the midpoint of the season and is sensitive to the expected profit margin and demand forecast errors. We discuss the impacts of the timing decision on upstream suppliers' sales and channel performance in terms of sales revenue and supply-demand mismatch costs. Specifically, secondary market trading always reduces upstream suppliers' sales no matter when trading occurs, but trading at an optimal time can maximize a secondary market's profit gain over the no-trade scenario through reducing supply-demand mismatch.

Suggested Citation

  • Yan, Tingting & Dooley, Kevin J., 2010. "Entry timing in a secondary market: When to trade?," International Journal of Production Economics, Elsevier, vol. 124(1), pages 62-74, March.
    • Handle: RePEc:eee:proeco:v:124:y:2010:i:1:p:62-74
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    References listed on IDEAS

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    2. Trigeorgis, Lenos & Tsekrekos, Andrianos E., 2018. "Real Options in Operations Research: A Review," European Journal of Operational Research, Elsevier, vol. 270(1), pages 1-24.

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