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Centralized and Competitive Inventory Models with Demand Substitution

Author

Listed:
  • 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)

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.

Suggested Citation

  • Serguei Netessine & Nils Rudi, 2003. "Centralized and Competitive Inventory Models with Demand Substitution," Operations Research, INFORMS, vol. 51(2), pages 329-335, April.
    • Handle: RePEc:inm:oropre:v:51:y:2003:i:2:p:329-335
    DOI: 10.1287/opre.51.2.329.12788
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    References listed on IDEAS

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