A two-item newsboy problem with substitutability Academic Article uri icon

abstract

  • Abstract Previous research on the newsboy problem is based on the assumption that in case of a shortage, unsatisfied demand is lost. Such an assumption is inappropriate for items that have a close substitute. In this paper, we formulate a two-item newsboy problem with substitutability (TINPS). Upper and lower bounds on the optimal order quantities of the two items are derived. Since analytical solutions to the problem are difficult to obtain, a Monte Carlo simulation is used to identify the optimal solution to the TINPS. Order quantities identified by the simulation provide higher expected profit than would have been obtainable without considering substitutability.

publication date

  • January 1, 1996