Fay’s probabilistic selling, inventory management research to appear in Management Science
Research by Scott Fay, associate professor of marketing at the Martin J. Whitman School of Management at Syracuse University, and Jinhong Xie, professor and JCPenney Eminent Scholar Chair at the Warrington College of Business Administration at the University of Florida, has been accepted for publication by the academic journal Management Science.
The paper, titled “Timing of Product Allocation: Using Probabilistic Selling to Enhance Inventory Management,” examines whether probabilistic selling (PS) can help a seller better manage their inventories. While it’s intuitive that PS can help in inventory management when allocations are not made until the seller learns which item is less appealing to consumers, the researchers demonstrate that PS can be effective even if the firm allocates products before knowing which product will be more popular, and thus, scarcer.
“It can be more profitable to allocate products to consumers before, rather than after, learning the true demand for a product because it enables the firm to charge higher prices,” says Fay. “Early allocation effectively allows the seller to commit to random assignments, whereas under late allocations, consumers expect to receive a less popular item.”
Fay and Xie also explore how optimal inventory levels change as a seller introduces probabilistic goods, and show that PS can simultaneously increase both profit and social welfare.