IDEAS home Printed from https://ideas.repec.org/a/spr/operea/v22y2022i2d10.1007_s12351-020-00599-x.html
   My bibliography  Save this article

Joint pricing and inventory decision under a probabilistic selling strategy

Author

Listed:
  • Yifan Wu

    (East China University of Science and Technology)

  • Shibo Jin

    (East China University of Science and Technology)

Abstract

This study examines whether probabilistic selling could enhance inventory management considering market size uncertainty in a rather general setting. We propose to study the impact of probabilistic selling on the profit, price and order quantity within a newsvendor framework. By comparing probabilistic selling against traditional selling, we find that probabilistic selling could generally increase firm’s expected profit. Moreover, the firm will increase the price and the order quantity for the component product. The impact of various aspects, i.e. the demand variance, the unit cost and the degree of cannibalization, on the pricing and order decisions are investigated through numerical experiments.

Suggested Citation

  • Yifan Wu & Shibo Jin, 2022. "Joint pricing and inventory decision under a probabilistic selling strategy," Operational Research, Springer, vol. 22(2), pages 1209-1233, April.
    • Handle: RePEc:spr:operea:v:22:y:2022:i:2:d:10.1007_s12351-020-00599-x
    DOI: 10.1007/s12351-020-00599-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s12351-020-00599-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s12351-020-00599-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Anderson, Chris K. & Xie, Xiaoqing, 2014. "Pricing and market segmentation using opaque selling mechanisms," European Journal of Operational Research, Elsevier, vol. 233(1), pages 263-272.
    2. Yongbo Xiao & Jian Chen, 2014. "Evaluating the potential effects from probabilistic selling of similar products," Naval Research Logistics (NRL), John Wiley & Sons, vol. 61(8), pages 604-620, December.
    3. Rachel R. Chen & Esther Gal-Or & Paolo Roma, 2014. "Opaque Distribution Channels for Competing Service Providers: Posted Price vs. Name-Your-Own-Price Mechanisms," Operations Research, INFORMS, vol. 62(4), pages 733-750, August.
    4. Rice, Dan Hamilton & Fay, Scott A. & Xie, Jinhong, 2014. "Probabilistic selling vs. markdown selling: Price discrimination and management of demand uncertainty in retailing," International Journal of Research in Marketing, Elsevier, vol. 31(2), pages 147-155.
    5. Fay, Scott & Xie, Jinhong & Feng, Cong, 2015. "The Effect of Probabilistic Selling on the Optimal Product Mix," Journal of Retailing, Elsevier, vol. 91(3), pages 451-467.
    6. Scott Fay & Jinhong Xie, 2015. "Timing of Product Allocation: Using Probabilistic Selling to Enhance Inventory Management," Management Science, INFORMS, vol. 61(2), pages 474-484, February.
    7. Zhang, Yi & Hua, Guowei & Wang, Shouyang & Zhang, Juliang & Fernandez, Vicenc, 2018. "Managing demand uncertainty: Probabilistic selling versus inventory substitution," International Journal of Production Economics, Elsevier, vol. 196(C), pages 56-67.
    8. Zelin Zhang & Kissan Joseph & Ramanathan Subramaniam, 2015. "Probabilistic Selling in Quality-Differentiated Markets," Management Science, INFORMS, vol. 61(8), pages 1959-1977, August.
    9. Kinshuk Jerath & Serguei Netessine & Senthil K. Veeraraghavan, 2010. "Revenue Management with Strategic Customers: Last-Minute Selling and Opaque Selling," Management Science, INFORMS, vol. 56(3), pages 430-448, March.
    10. Martin A. Lariviere & Evan L. Porteus, 2001. "Selling to the Newsvendor: An Analysis of Price-Only Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 293-305, May.
    11. Scott Fay & Jinhong Xie, 2008. "Probabilistic Goods: A Creative Way of Selling Products and Services," Marketing Science, INFORMS, vol. 27(4), pages 674-690, 07-08.
    12. Tingliang Huang & Yimin Yu, 2014. "Sell Probabilistic Goods? A Behavioral Explanation for Opaque Selling," Marketing Science, INFORMS, vol. 33(5), pages 743-759, September.
    13. David Post & Martin Spann, 2012. "Improving Airline Revenues with Variable Opaque Products: “Blind Booking” at Germanwings," Interfaces, INFORMS, vol. 42(4), pages 329-338, August.
    14. Fay, Scott, 2008. "Selling an opaque product through an intermediary: The case of disguising one's product," Journal of Retailing, Elsevier, vol. 84(1), pages 59-75.
    15. Scott Fay & Jinhong Xie, 2010. "The Economics of Buyer Uncertainty: Advance Selling vs. Probabilistic Selling," Marketing Science, INFORMS, vol. 29(6), pages 1040-1057, 11-12.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ben Li & Xiaolong Guo & Liang Liang, 2024. "Optimal pricing decision and capacity allocation of opaque selling in airline revenue management," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 23(4), pages 356-368, August.
    2. Shunlin Wang & Yifang Chen, 2022. "Consumption Coupons, Consumption Probability and Inventory Optimization: An Improved Minimum-Cost Maximum-Flow Approach," Sustainability, MDPI, vol. 14(13), pages 1-14, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Zihao & Zhang, Mengying, 2024. "Pricing and Capacity Allocation in Opaque Selling," European Journal of Operational Research, Elsevier, vol. 318(1), pages 230-241.
    2. Guang Yang & Ying Wang & Mulin Liu, 2023. "Optimal Policy for Probabilistic Selling with Three-Way Revenue Sharing Contract under the Perspective of Sustainable Supply Chain," Sustainability, MDPI, vol. 15(4), pages 1-22, February.
    3. Feng, Bo & Mao, Zhaofang & Li, Hui, 2021. "Choices for competing service providers with heterogeneous customers: Traditional versus opaque sales modes," Omega, Elsevier, vol. 98(C).
    4. Guo, Xiaolong & Bian, Junsong & Wu, Peiyan & Shi, Victor & Chen, Huangen, 2023. "Probabilistic product design with regret-anticipated consumers," International Journal of Production Economics, Elsevier, vol. 263(C).
    5. Zhang, Juliang & Deng, Lan & Liu, Huimin & Cheng, T.C.E., 2022. "Which strategy is better for managing multi-product demand uncertainty: Inventory substitution or probabilistic selling?," European Journal of Operational Research, Elsevier, vol. 302(1), pages 79-95.
    6. Yeu-Shiang Huang & Tzu-Yi Wu & Chih-Chiang Fang & Tzu-Liang (Bill) Tseng, 2021. "Decisions on Probabilistic Selling for Consumers with Different Risk Attitudes," Decision Analysis, INFORMS, vol. 18(2), pages 121-138, June.
    7. Zhang, Yi & Hua, Guowei & Cheng, T.C.E. & Zhang, Juliang & Fernandez, Vicenc, 2020. "Risk pooling through physical probabilistic selling," International Journal of Production Economics, Elsevier, vol. 219(C), pages 295-311.
    8. Aleksandra Kovacheva & Hristina Nikolova, 2024. "Uncertainty marketing tactics: An overview and a unifying framework," Journal of the Academy of Marketing Science, Springer, vol. 52(1), pages 1-22, January.
    9. Qing Li & Christopher S. Tang & He Xu, 2020. "Mitigating the Double‐Blind Effect in Opaque Selling: Inventory and Information," Production and Operations Management, Production and Operations Management Society, vol. 29(1), pages 35-54, January.
    10. Quan Zheng & Xiajun Amy Pan & Janice E. Carrillo, 2019. "Probabilistic Selling for Vertically Differentiated Products with Salient Thinkers," Marketing Science, INFORMS, vol. 38(3), pages 442-460, May.
    11. Alonso, Juana M. & Socorro, M. Pilar, 2024. "Blind booking: The effects on passengers' purchase decision, airlines’ profitability, and tourist destinations," Research in Transportation Economics, Elsevier, vol. 105(C).
    12. Adam N. Elmachtoub & Michael L. Hamilton, 2021. "The Power of Opaque Products in Pricing," Management Science, INFORMS, vol. 67(8), pages 4686-4702, August.
    13. Yuetao Gao & Yue Wu, 2023. "Regulating Probabilistic Selling of Counterfeits," Management Science, INFORMS, vol. 69(8), pages 4498-4517, August.
    14. Mao, Zhaofang & Liu, Wei & Feng, Bo, 2019. "Opaque distribution channels for service providers with asymmetric capacities: Posted-price mechanisms," International Journal of Production Economics, Elsevier, vol. 215(C), pages 112-120.
    15. Zhang, Yi & Hua, Guowei & Wang, Shouyang & Zhang, Juliang & Fernandez, Vicenc, 2018. "Managing demand uncertainty: Probabilistic selling versus inventory substitution," International Journal of Production Economics, Elsevier, vol. 196(C), pages 56-67.
    16. Yong Chao & Lin Liu & Dongyuan Zhan, 2016. "Vertical Probabilistic Selling under Competition: the Role of Consumer Anticipated Regret," Working Papers 16-14, NET Institute.
    17. Fu, Qi & Wang, Qifei & Xu, Xiaoya & Lian, Zhaotong, 2017. "A two-product newsvendor system with a flexible product," International Journal of Production Economics, Elsevier, vol. 193(C), pages 590-601.
    18. Fay, Scott & Xie, Jinhong & Feng, Cong, 2015. "The Effect of Probabilistic Selling on the Optimal Product Mix," Journal of Retailing, Elsevier, vol. 91(3), pages 451-467.
    19. Ben Li & Xiaolong Guo & Liang Liang, 2024. "Optimal pricing decision and capacity allocation of opaque selling in airline revenue management," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 23(4), pages 356-368, August.
    20. Ying He & Huaxia Rui, 2022. "Probabilistic selling in vertically differentiated markets: The role of substitution," Production and Operations Management, Production and Operations Management Society, vol. 31(11), pages 4191-4204, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:operea:v:22:y:2022:i:2:d:10.1007_s12351-020-00599-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.