Centralized and Competitive Inventory Models with Demand Substitution
- 1 April 2003
- journal article
- Published by Institute for Operations Research and the Management Sciences (INFORMS) in Operations Research
- Vol. 51 (2), 329-335
- https://doi.org/10.1287/opre.51.2.329.12788
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.Keywords
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