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

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  • Xiangling Hu
  • Jaideep Motwani

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.

Suggested Citation

  • Xiangling Hu & Jaideep Motwani, 2021. "The second purchase decision under selling price-sensitive stochastic demand and purchasing price uncertainty," International Journal of Operational Research, Inderscience Enterprises Ltd, vol. 40(4), pages 489-501.
    • Handle: RePEc:ids:ijores:v:40:y:2021:i:4:p:489-501
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