CFDP 1270

Optimal Inventory Policies When Sales Are Discretionary

Publication Date: August 2000

Pages: 10

Abstract: 

Inventory models customarily assume that demand is fully satisfied if sufficient stock is available. We analyze the form of the optimal inventory policy if the inventory manager can choose to meet a fraction of the demand. Under classical conditions we show that the optimal policy is again of the (S,s) form.

The analysis makes use of a novel property of K-concave functions.

Keywords: 

Inventory theory, optimal ordering policies, (S,s) policies, K-concavity

JEL Classification Codes: C6

See CFP: 1104