Inventory disclosure in online retailing

Tolga Aydinliyim, Michael S. Pangburn, Elliot Rabinovich

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

Unlike in a traditional store environment where inventory is directly visible to customers, Internet retailers can selectively choose how to divulge inventory level information to customers. For example, when viewing a particular item page, online shoppers may either see merely “in stock” or a specific inventory level. By choosing the appropriate inventory-level cue to display, a retailer can selectively signal stock-out risk to customers. In this paper, we analyze the optimal structure of an online retailer's inventory disclosure and pricing policy, in a two-period setting—a regular selling period followed by a clearance period. Consumers may potentially face uncertainty regarding the firm's inventory level, as well as the overall market demand. We show that there exists an inventory level threshold below which a retailer should optimally disclose inventory, and above which masking (i.e., showing only “in stock”) is optimal. Even though the optimal price decreases in the stock level, we show that equilibrium full-price sales may increase or decrease, highlighting the non-intuitive consumer behavior implications of selective inventory disclosure. The optimal “threshold-type” inventory disclosure that we derive reflects the practice of several prominent online retailers selling fashion products, and is new to the literature as prior models of inventory sharing invoked assumptions that led to either consistent disclosure or consistent masking to be optimal. We also extend the model to consider a stochastic market size, and thus highlight that the threshold policy structure continues to hold with demand uncertainty.

Original languageEnglish (US)
Pages (from-to)195-204
Number of pages10
JournalEuropean Journal of Operational Research
Volume261
Issue number1
DOIs
StatePublished - Aug 16 2017

Fingerprint

Retailing
Disclosure
Sales
Consumer behavior
Internet
Customers
Masking
Online retailing
Costs
Sale price
Demand Uncertainty
Consumer Behaviour
Decrease
Uncertainty
Clearance
Pricing
Sharing
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Keywords

  • Inventory information disclosure
  • OR in marketing
  • Pricing
  • Retailing
  • Strategic consumers

ASJC Scopus subject areas

  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

Cite this

Inventory disclosure in online retailing. / Aydinliyim, Tolga; Pangburn, Michael S.; Rabinovich, Elliot.

In: European Journal of Operational Research, Vol. 261, No. 1, 16.08.2017, p. 195-204.

Research output: Contribution to journalArticle

Aydinliyim, Tolga ; Pangburn, Michael S. ; Rabinovich, Elliot. / Inventory disclosure in online retailing. In: European Journal of Operational Research. 2017 ; Vol. 261, No. 1. pp. 195-204.
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