Title: The second purchase decision under selling price-sensitive stochastic demand and purchasing price uncertainty

Authors: Xiangling Hu; Jaideep Motwani

Addresses: Management Department, Seidman College of Business, Grand Valley State University, Grand Rapids, Michigan, USA ' Management Department, Seidman College of Business, Grand Valley State University, Grand Rapids, Michigan, USA

Abstract: It is quite common for a retailer to stock a specific quantity of a product more than once during a certain time period and then sell the product to the customers during the selling season. The retailer also has the option to make a second purchase, as long as there is a potential profit increase on account of the purchase. Due to the stochastic spot market purchasing price and the selling price dependent random demand, the retailer needs to determine whether a second purchase is necessary and if so what are the corresponding order time, quantity, and selling price in order to maximise the expected profit. In this paper, we develop a reality-adaptable solution algorithm to simplify the solution procedure. We also run simulations to analyse the inventory decisions, and to compute the profits when a second purchase is possible.

Keywords: purchasing; pricing; price uncertainties; price-sensitive stochastic demand.

DOI: 10.1504/IJOR.2021.114838

International Journal of Operational Research, 2021 Vol.40 No.4, pp.489 - 501

Received: 10 Oct 2017
Accepted: 03 Sep 2018

Published online: 29 Apr 2021 *

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