Dynamic inventory control game for perishable products with concurrent probabilistic demands from two fare classes

With the existence of uncertain demands and competitors, a seller’s inventory control policy for perishable products can significantly affect the seller and consumers due to its effects on the seller’s revenue, transferred demand, and product availability. In this paper, we consider two sellers selling substitutable products in a market where the ordering requests from different fare classes arrive concurrently. We formulate this problem as a two-player two-fare-class dynamic inventory control game, and examine the optimal accept/reject policies in both non-cooperative and cooperative situations. Our results shed light on three issues: the impact of transferred demand on a seller’s revenue, the structure of the optimal inventory control policy, and the importance of cooperation for sellers in the presence of transferred demand.