Optimal operating policies in a commodity trading market with the manufacturer's presence

Hui Zhao, Arnab Bisi

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

With the help of the Internet and express delivery at relatively low costs, trading markets have become increasingly popular as a venue to sell excess inventory and a source to obtain products at lower prices. In this article, we study the operational decisions in the presence of a trading market in a periodic-review, finite-horizon setting. Prices in the trading market change periodically and are determined endogenously by the demand and supply in the market.We characterize the retailers' optimal ordering and trading policies when the original manufacturer and the trading market co-exist and retailers face fees to participate in the trading market. Comparing with the case with no trading fees, we obtain insights into the impact of trading fees and the fee structure on the retailers and the manufacturer. Further, we find that by continually staying in the market, the manufacturer may use her pricing strategies to counter-balance the negative impact of the trading market on her profit. Finally, we extend the model to the case when retailers dynamically update their demand distribution based on demand observations in previous periods. A numerical study provides additional insights into the impact of demand updating in a trading market with the manufacturer's competition.

Original languageEnglish (US)
Pages (from-to)127-148
Number of pages22
JournalNaval Research Logistics
Volume57
Issue number2
DOIs
StatePublished - Mar 1 2010

Fingerprint

Costs
Profitability
Internet
Periodic Review
Policy
Market
Commodities
Finite Horizon
Pricing
Updating
Excess
Profit
Numerical Study
Express
Update
Demand
Fees
Retailers
Model

All Science Journal Classification (ASJC) codes

  • Modeling and Simulation
  • Ocean Engineering
  • Management Science and Operations Research

Cite this

@article{80a370b5f556484cb6d3a53b7921cd75,
title = "Optimal operating policies in a commodity trading market with the manufacturer's presence",
abstract = "With the help of the Internet and express delivery at relatively low costs, trading markets have become increasingly popular as a venue to sell excess inventory and a source to obtain products at lower prices. In this article, we study the operational decisions in the presence of a trading market in a periodic-review, finite-horizon setting. Prices in the trading market change periodically and are determined endogenously by the demand and supply in the market.We characterize the retailers' optimal ordering and trading policies when the original manufacturer and the trading market co-exist and retailers face fees to participate in the trading market. Comparing with the case with no trading fees, we obtain insights into the impact of trading fees and the fee structure on the retailers and the manufacturer. Further, we find that by continually staying in the market, the manufacturer may use her pricing strategies to counter-balance the negative impact of the trading market on her profit. Finally, we extend the model to the case when retailers dynamically update their demand distribution based on demand observations in previous periods. A numerical study provides additional insights into the impact of demand updating in a trading market with the manufacturer's competition.",
author = "Hui Zhao and Arnab Bisi",
year = "2010",
month = "3",
day = "1",
doi = "10.1002/nav.20391",
language = "English (US)",
volume = "57",
pages = "127--148",
journal = "Naval Research Logistics",
issn = "0894-069X",
publisher = "John Wiley and Sons Inc.",
number = "2",

}

Optimal operating policies in a commodity trading market with the manufacturer's presence. / Zhao, Hui; Bisi, Arnab.

In: Naval Research Logistics, Vol. 57, No. 2, 01.03.2010, p. 127-148.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Optimal operating policies in a commodity trading market with the manufacturer's presence

AU - Zhao, Hui

AU - Bisi, Arnab

PY - 2010/3/1

Y1 - 2010/3/1

N2 - With the help of the Internet and express delivery at relatively low costs, trading markets have become increasingly popular as a venue to sell excess inventory and a source to obtain products at lower prices. In this article, we study the operational decisions in the presence of a trading market in a periodic-review, finite-horizon setting. Prices in the trading market change periodically and are determined endogenously by the demand and supply in the market.We characterize the retailers' optimal ordering and trading policies when the original manufacturer and the trading market co-exist and retailers face fees to participate in the trading market. Comparing with the case with no trading fees, we obtain insights into the impact of trading fees and the fee structure on the retailers and the manufacturer. Further, we find that by continually staying in the market, the manufacturer may use her pricing strategies to counter-balance the negative impact of the trading market on her profit. Finally, we extend the model to the case when retailers dynamically update their demand distribution based on demand observations in previous periods. A numerical study provides additional insights into the impact of demand updating in a trading market with the manufacturer's competition.

AB - With the help of the Internet and express delivery at relatively low costs, trading markets have become increasingly popular as a venue to sell excess inventory and a source to obtain products at lower prices. In this article, we study the operational decisions in the presence of a trading market in a periodic-review, finite-horizon setting. Prices in the trading market change periodically and are determined endogenously by the demand and supply in the market.We characterize the retailers' optimal ordering and trading policies when the original manufacturer and the trading market co-exist and retailers face fees to participate in the trading market. Comparing with the case with no trading fees, we obtain insights into the impact of trading fees and the fee structure on the retailers and the manufacturer. Further, we find that by continually staying in the market, the manufacturer may use her pricing strategies to counter-balance the negative impact of the trading market on her profit. Finally, we extend the model to the case when retailers dynamically update their demand distribution based on demand observations in previous periods. A numerical study provides additional insights into the impact of demand updating in a trading market with the manufacturer's competition.

UR - http://www.scopus.com/inward/record.url?scp=76649085501&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=76649085501&partnerID=8YFLogxK

U2 - 10.1002/nav.20391

DO - 10.1002/nav.20391

M3 - Article

VL - 57

SP - 127

EP - 148

JO - Naval Research Logistics

JF - Naval Research Logistics

SN - 0894-069X

IS - 2

ER -