Retailer and Salvage Retailer Relationship when Demand Depends on Product Price, Freshness, and Displayed Inventory Level

Abstract

A unique phenomenon in the retailer market nowadays, where some of the retailers (salvage retailers) buy nearly expired grocery products from other retailers and resell them, may lead to the better market segmentation and increase the utilities of both consumer and retailers. This paper aims to model the possible relationship (i.e., decentralized and centralized system) between retailer and salvage retailer. EOQ model with demand as a multivariate function of product price, freshness level, and displayed inventory level is used. Zero ending inventory assumption inventory is also relaxed to boost the sale and profit based on the demand formulation. As a result, the objective is to determine three decision variables (i.e., product price, inventory cycle time, and ending inventory level) in order to maximize the total profit. Numerical examples are presented to highlight the theoretical implications and managerial insight.