Simulating the demand reshaping and substitution effects of probabilistic selling

Y. Zhang, A. Q. Huang, T. C.E. Cheng, S. Y. Wang, V. Fernandez

Research output: Journal article publicationJournal articleAcademic researchpeer-review

4 Citations (Scopus)

Abstract

This paper addresses the effect of probabilistic selling on inventory decisions and the expected profit through demand reshaping and demand substitution. By considering a scenario with two higher-priced specific products and one lower-priced probabilistic product, we construct a new newsboy-type inventory model with demand reshaping and substitution. A simulation study is implemented to explore extensively the effects of demand uncertainty, demand correlation, price sensitivity and price discount on the inventory decisions and profitability of probabilistic selling. Finally, we provide insightful managerial implications of the nature of inventory management mechanism of probabilistic selling.
Original languageEnglish
Pages (from-to)699-710
Number of pages12
JournalInternational Journal of Simulation Modelling
Volume15
Issue number4
DOIs
Publication statusPublished - 1 Jan 2016

Keywords

  • Demand reshaping
  • Demand substitution
  • Inventory
  • Probabilistic selling

ASJC Scopus subject areas

  • Modelling and Simulation
  • Computer Science Applications

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