Group for Research in Decision Analysis

G-2019-67

Pricing and order quantity of substitutes in two inventory-related markets

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We determine optimal pricing and order quantity of two substitute products in two markets, one of them is seasonal, with a decreasing market potential over time, and the other is non-seasonal. The two markets are sealed, that is, the prices in one market are irrelevant to consumers in the other market. Still, the two markets are linked through inventories and the order quantity policy. In the paper, we develop a non-linear model and provide an algorithm to compute the optimal solution. An illustrative example is given along with a sensitivity analysis.

, 24 pages