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Inventory Management with Auctions and Other Sales Channels: Optimality of (s, S) Policies

Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
Stern School of Business, New York University, New York, New York 10012
huh{at}ieor.columbia.edu
gjanakir{at}stern.nyu.edu

We study periodic-review inventory replenishment problems with fixed ordering costs, and show the optimality of (s, S) inventory replenishment policies. Inventory replenishment is instantaneous, i.e., the lead time is zero. We consider several sales mechanisms, e.g., auction mechanisms, name-your-own-price mechanisms, and multiple heterogeneous sales channels. We prove this result by showing that these models satisfy a recently-established sufficient condition for the optimality of (s, S) policies. Thus, this paper shows that the optimality of (s, S) policies extends well beyond the traditional sales environments studied so far in the inventory literature.

Key Words: (s, S) policies; stochastic inventory systems; fixed cost; auction; multiple sales channels
History: Received: May 16, 2006;

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