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

Hui Zhao, Arnab Bisi

Research output: Contribution to journalArticle

3 Scopus citations

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

All Science Journal Classification (ASJC) codes

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

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