Inventory Levels of Two Stockout-based Substitutable Products under Centralized and Competitive Settings

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Abstract

In this paper, we study the optimal inventory levels of two vertically differentiated products under centralized and competitive settings using a general consumer choice model. Under the assumptions that consumers are heterogeneous and are willing to substitute with the other product if their preferred product is out of stock, we develop an inventory model under base stock substitution when the number of consumers is stochastic. Closed-form analytical solutions of the optimal inventory level are derived. We found that in comparison to a competitive setting, a centralized retailer stocks a lower level of inventory from the product that runs out of stock first and a higher level of inventory from the product that runs out second.

Original languageEnglish
Pages (from-to)1450-1454
Number of pages5
JournalIFAC-PapersOnLine
Volume52
Issue number13
DOIs
StatePublished - Sep 2019
Event9th IFAC Conference on Manufacturing Modelling, Management and Control, MIM 2019 - Berlin, Germany
Duration: 28 Aug 201930 Aug 2019

Bibliographical note

Publisher Copyright:
© 2019, IFAC (International Federation of Automatic Control) Hosting by Elsevier Ltd. All rights reserved.

Keywords

  • Game theory
  • Inventory
  • Stock-out substitution
  • Two-dimensional consumer-choice

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