An inventory model for group-buying auction

TL;DR

This paper develops a stochastic inventory model for group-buying auctions, incorporating various costs and penalties, and derives an optimal replenishment policy using renewal theory.

Contribution

It introduces a novel stochastic inventory model tailored for group-buying auctions, including a closed-form solution for optimal replenishment.

Findings

Derived a closed-form optimal replenishment quantity.

Analyzed the impact of auction success probabilities on costs.

Provided a comprehensive framework for inventory management in group-buying contexts.

Abstract

Group-buying auction has become a popular marketing strategy in the last decade. In this paper, a stochastic model is developed for an inventory system subjects to demands from group-buying auctions. The model discussed here takes into the account of the costs of inventory, transportation, dispatching and re-order as well as the penalty cost of non-successful auctions. Since a new cycle begins whenever there is a replenishment of products, the long-run average costs of the model can be obtained by using the renewal theory. A closed form solution of the optimal replenishment quantity is also derived.