A two-item newsboy problem with substitutability

Moutaz Khouja, Abraham Mehrez, Gad Rabinowitz

Research output: Contribution to journalArticlepeer-review

48 Scopus citations

Abstract

Previous research on the newsboy problem is based on the assumption that in case of a shortage, unsatisfied demand is lost. Such an assumption is inappropriate for items that have a close substitute. In this paper, we formulate a two-item newsboy problem with substitutability (TINPS). Upper and lower bounds on the optimal order quantities of the two items are derived. Since analytical solutions to the problem are difficult to obtain, a Monte Carlo simulation is used to identify the optimal solution to the TINPS. Order quantities identified by the simulation provide higher expected profit than would have been obtainable without considering substitutability.

Original languageEnglish
Pages (from-to)267-275
Number of pages9
JournalInternational Journal of Production Economics
Volume44
Issue number3
DOIs
StatePublished - 1 Jul 1996

Keywords

  • Monte Carlo simulation
  • Single-period problem
  • Substitutability

ASJC Scopus subject areas

  • Business, Management and Accounting (all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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