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The effect of market segmentation with demand leakage between market segments on a firm’s price and inventory decisions. (English) Zbl 1121.90383
Summary: We address the simultaneous determination of price and inventory replenishment in a newsvendor setting when the firm faces demand from two or more market segments in which the firm can set different prices. We allow for demand leakage from higher-priced segments to lower-priced segments and assume that unsatisfied demand can be backlogged. We examine the case where the demands occur concurrently without priority and are met from a single inventory. We consider customer’s buy-down behavior explicitly by modeling demand leakage as a function of segment price differentiation, and characterize the structure of optimal inventory and pricing policies.

MSC:
90B50 Management decision making, including multiple objectives
90B60 Marketing, advertising
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