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PRICE‐DEPENDENT INVENTORY MODELS WITH DISCOUNT OFFERS AT RANDOM TIMES*
Author(s) -
GOH MARK,
SHARAFALI MOOSA
Publication year - 2002
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.2002.tb00488.x
Subject(s) - economic order quantity , stock (firearms) , microeconomics , economics , perpetual inventory , order (exchange) , stochastic discount factor , discounting , position (finance) , inventory cost , inventory control , econometrics , business , supply chain , inventory theory , finance , marketing , operations management , capital asset pricing model , mechanical engineering , engineering
We consider an inventory model with a supplier offering discounts to a reseller at random epochs. The offer is accepted when the inventory position is lower than a threshold level. We compare three different pricing policies in which demand is induced by the resellers price variation. Policy 1 is the EOQ policy without discount offers. Policy 2 is a uniform price, stock‐independent policy. Policy 3 is a stock level‐dependent, discriminated price policy. Assuming constant demand rates, expressions are obtained for the optimal order quantities, prices, and profits. The numerical experiments show that if it is better to accept a suppliers discount, then it benefits the reseller to transfer the discount to downstream customers.