Inventory pooling and pricing decisions in multiple markets with strategic customers

Abstract

This study considers the pricing and inventory decisions for the retailer selling in multiple markets with strategic customers. The impact of strategic customer behavior on inventory pooling is examined. The equilibrium decisions, in which strategic customers tend to purchase early, are subsequently characterized in the pooled/non-pooled systems. Our results highlight the role of the strategic customer in each market. Compared with myopic customers, the retailer is prone to reduce its inventory for strategic customers. The retailer’s optimal inventory for high-profit products is lower in the pooled system than in the non-pooled system. However, the result is reversed for low-profit products. The analytical and numerical results simultaneously demonstrate that, in the high-profit condition, the retailers’ inventory in the pooled system increases with the correlation coefficient of different markets, while the retailers’ profit decreases with the correlation coefficient. There is an opposite relationship in the low-profit condition. When the markets are less correlated, the retailer owns low inventory but high profit. Moreover, the retailers’ profit is always higher in the pooled system than in the non-pooled system.