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Dynamic analysis of the Newsboy model with early purchase commitments

Author

Listed:
  • Hairong Chen
  • Mahmut Parlar

Abstract

We consider a product with normally distributed random demand and a short life-cycle. In order to reduce demand uncertainty, the retailer offers a price-incentive to the customers who commit themselves to purchasing the product before the regular sale season starts. After observing the number of customers who commit, the retailer determines the optimal order quantity to maximise the total expected profit. Two different dynamic programming models are considered to solve this sequential decision problem. For both models, the optimal decisions are computed by solving the functional equations. The numerical results show that when it is optimal to offer price incentives one can reduce demand uncertainty and increase the total expected profit.

Suggested Citation

  • Hairong Chen & Mahmut Parlar, 2005. "Dynamic analysis of the Newsboy model with early purchase commitments," International Journal of Services and Operations Management, Inderscience Enterprises Ltd, vol. 1(1), pages 56-74.
  • Handle: RePEc:ids:ijsoma:v:1:y:2005:i:1:p:56-74
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    Cited by:

    1. repec:wly:mgtdec:v:38:y:2017:i:6:p:765-783 is not listed on IDEAS
    2. Oksana Loginova & X. Henry Wang & Chenhang Zeng, 2017. "Learning in Advance Selling with Heterogeneous Consumers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(6), pages 765-783, September.
    3. Oksana Loginova & X. Hnery Wang & Chenhang Zeng, 2011. "Advance Selling in the Presence of Experienced Consumers," Working Papers 1108, Department of Economics, University of Missouri.
    4. repec:umc:wpaper:1303 is not listed on IDEAS
    5. Chenhang Zeng, 2013. "Optimal Advance Selling Strategy under Price Commitment," Pacific Economic Review, Wiley Blackwell, vol. 18(2), pages 233-258, May.
    6. repec:umc:wpaper:1213 is not listed on IDEAS

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