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Dynamic Inventory Control With Satisfaction-Dependent Demand

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Executive Summary

In this paper, the authors consider the discrete multiperiod newsvendor dynamic inventory control problem where customers follow a simple satisfaction-based demand process, where their probability of demand depends on whether their demand was satisfied the last time they demanded a product, and observe the differences between optimal policies and myopic policies which do not directly consider how inventory policies can affect future demand. They confirm the intuitive result that inventory managers should tend to order more than the myopic policy when satisfied customers are more likely to demand product and less than the myopic policy when satisfied customers are less likely to demand.

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