Risk-Aversion Approach for Inventory Model Considering a Competitive Store and an Alternative Product

Abstract

This paper considers a risk-aversion approach for an inventory model considering standard and high qualities of a product under a competitive store. In the case the competitive store sells a standard product, another store must decide the purchase volumes, prices and ordering quantities of standard and high quality products in order to manage a loss risk as well as maximize the total profit. In this paper, a mathematical programming problem of the proposed model is proposed considering these conditions and uncertainty of consumer demand based on risk measure such as conditional Value-at-Risk. Furthermore, in order to obtain the optimal prices and ordering quantities, a scenario-based approach is developed.