Measuring and Mitigating the Costs of Stockouts
Management Science
Asymmetric Consumer Learning and Inventory Competition
Management Science
Measuring and Mitigating the Costs of Stockouts
Management Science
Consumer Returns Policies and Supply Chain Performance
Manufacturing & Service Operations Management
Inventory Dynamics and Supply Chain Coordination
Management Science
The Newsvendor Problem with Advertising Revenue
Manufacturing & Service Operations Management
Computers and Industrial Engineering
What Is Interesting in Operations Management?
Manufacturing & Service Operations Management
Manufacturing & Service Operations Management
Clearance Pricing Optimization for a Fast-Fashion Retailer
Operations Research
Clearance Pricing Optimization for a Fast-Fashion Retailer
Operations Research
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This paper considers a firm's price and inventory policy when it faces uncertain demand that depends on both price and inventory level. The authors extend the classic newsvendor model by assuming that expected utility maximizing consumers choose between visiting the firm and consuming an exogenous outside option. The outside option represents the utility the consumer forgoes when she chooses to visit the firm before knowing whether or not the product will be available. The authors investigate both the case in which the firm's price is exogenous and the case in which price is chosen optimally. The paper makes two contributions. First, the authors show that the firm holds more inventories, provides a higher fill rate, attracts more customers, and earns higher profits when it internalizes the effect of its inventory on demand. Second, the authors show that in the endogenous price case the firm's two-dimensional decision problem can be reduced to two, sequential, single-variable optimizations. As a result, the endogenous-price case is as easy to solve as the exogenous-price case.