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Discount-offering and demand-rejection decisions for substitutable products with different profit levels

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  • This study focuses on discount-offering and demand-rejection decisions for a retailer selling substitutable products. Those products are assumed to be generated different unit net revenues. We first consider a basic model with only two substitutable products and formulate the retailer's objective function by means of dynamic programming model. We show that the retailer can employ simple offering- and rejection-decision rules that are derived in accordance with the stocking quantities of the products. Moreover, it is identified that the retailer's offering decision can also be made according to the number of remaining selling periods. We conduct some numerical examples to testify how those decision rules to vary with regard to different parameters. Further, we extend the basic model to the case with three partially substitutable products. It is shown that the simple offering-decision rules are existed only under some restrictive conditions, and especially, it is difficult to analytically develop any simple rejection-decision rules.
    Mathematics Subject Classification: Primary: 90B50; Secondary: 49L60.

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