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Advance selling under deposit expansion and consumer’s valuation change

Author

Listed:
  • Qinhong Zhang

    (Shanghai Jiao Tong University)

  • Xinyue Cheng

    (Shanghai Jiao Tong University)

  • Yu-Chung Tsao

    (National Taiwan University of Science and Technology
    National Taiwan University of Science and Technology
    Asia University
    China Medical University Hospital, China Medical University)

  • Dali Zhang

    (Shanghai Jiao Tong University)

Abstract

Motivated by the emerging practices of China's major e-commerce platforms, we investigate the effect of consumer’s valuation change, deposit expansion and return policy on retailer’s advance booking decisions. We establish the retailer’s expected profit based on a two-stage newsvendor model and derive his optimal deposit and order quantity decisions under different scenarios. Our conclusions show that: (1) the retailer gains further profit under the advance selling strategy with a deposit, due to the reduction of inventory risk and exploitation of consumer’s valuation uncertainty; (2) the retailer benefits more from advance selling when he has a lower profit margin or the consumers have low-level prior valuations; (3) the effectiveness of advance selling on exploiting consumer’s valuation uncertainty will be weakened if the retailer allows customers to return products; (4) a lower deposit expansion rate leads to higher deposit and expected profit.

Suggested Citation

  • Qinhong Zhang & Xinyue Cheng & Yu-Chung Tsao & Dali Zhang, 2022. "Advance selling under deposit expansion and consumer’s valuation change," Operational Research, Springer, vol. 22(4), pages 3633-3661, September.
    • Handle: RePEc:spr:operea:v:22:y:2022:i:4:d:10.1007_s12351-021-00676-9
    DOI: 10.1007/s12351-021-00676-9
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    References listed on IDEAS

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