Paper Info
Title
Timing of Product Allocation: Using Probabilistic Selling to Enhance Inventory Management
Abstract
AbstractThis paper examines probabilistic selling PS as an inventory-management mechanism, paying special attention to the impact of the timing of product assignment to buyers of probabilistic goods. In practice, sellers tend to offer probabilistic products only after major demand uncertainty has been resolved. By deferring product assignments, a firm is able to obtain more information about demand for each specific product before deciding which product to assign to consumers. However, our analysis demonstrates that PS can be an effective inventory-management mechanism even if the firm allocates products before knowing which product will be more popular and, thus, scarcer. Interestingly, we show that it can be more profitable for the firm to allocate products to consumers before, rather than after, learning the true demand for a product because, although early allocation imposes higher inventory costs as a result of larger required inventory levels, it also enables the firm to charge higher prices. Our results also reveal that, when introducing probabilistic goods, the firm should order less inventory relative to the case where probabilistic goods are not offered if costs are very low but more inventory otherwise. Finally, we show that PS, as an inventory-management mechanism, can create a win--win situation, both improving profit and increasing social welfare.This paper was accepted by J. Miguel Villas-Boas, marketing.
Year
DOI
Venue
2015
10.1287/mnsc.2014.1948
Periodicals
Keywords
Field
DocType
inventory production,uncertainty,marketing,retailing and wholesaling,pricing
Cost of goods available for sale,Economics,Perpetual inventory,Microeconomics,Probabilistic logic,Social Welfare
Journal
Volume
Issue
ISSN
61
2
0025-1909
Citations 
PageRank 
References 
5
0.41
5
Authors
2
Name
Order
Citations
PageRank
Scott Fay150.74
Jinhong Xie239727.96