Optimal inventory and pricing strategy with capacity constraint in different market search
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    Abstract:

    This paper discusses joint decisions on inventory and pricing control with constraints in the supplier’s capacity in two types of market searches—customer-driven search ( CDS) and retailer-driven search ( RDS) —resulted from lack of or imbalances in inventory. By compariing between our results and those of existing literature without supplier’s capacity and inventory uncertainty,we concluded that,when the variation of random capacity is large enough,the retailer will increase the order quantity instead of changing pricing decisions. Otherwise,to reduce retail price is a better choice for the retailer. Furthermore,the equilibrium safety stock and retail price in CDS are always higher than those in RDS. Then,through analyzing the sensitivity of search intensity,we demonstrate that the equilibrium safety stock,retail price and sales are increasing in the search intensity in CDS,and not always increasing in RDS. Finally,penalty cost of stockout and transportation cost are considered to extend our model.

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  • Online: April 14,2018
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