Quantity competition for perishable products under demand substitution

Abstract

This paper provides optimal quantity ordering policies for perishable products under demand substitution in a competitive setting. An equilibrium point is found by using competitors’ response functions. We analyse the equilibrium point behaviour under different scenarios and observe that the equilibrium point increases if competi tors’ main priority is not to get shortage of products. Similarly, the equilibrium point decreases if competitors’ main priority is not to get outdated. We also see that the equilibrium point and total expected cost of competitors are inversely proportional with the amount of old products being brought into the new period. Numerical exam ples display that the demand substitution is beneficial for both players as it reduces the total cost of the system.