Abstract (100 words or less): |  | This paper develops an inventory model that determines replenishment strategies for buyers facing situations in which sellers offer price-discounting campaigns at random times as a way to drive sales or clear excess inventory. Specifically, the model deals with the inventory of a single item that is maintained to meet a constant demand over time. The item can be purchased at two different prices denoted high and low.
We assume that the low price goes into effect at random points in time following an exponential distribution, and lasts for a random length of time following another exponential distribution. The inventory ordering policy is of this form. When the price is high and inventory is about to run out, we order Q units. When the price is low and current inventory is below some level R, we raise inventory to some level S, where S >= Max(Q,R). We develop the cost rate function for this inventory problem and study its consequent nonlinear optimization problem both analytically and numerically. |