Effects of Discount Scenarios on Chaotic Behavior of Inventory Level Under Price-Dependent Demand

Abstract

In competitive conditions, demand depends on the price and retailers with lower prices sell more. In this paper a dynamic model is developed in which demand is price-dependent and the price is determined by the retailer based on its inventory level. The retailer can offer discounts to customers, regarding its inventory level, based on different scenarios such as linear, total or increasing scenarios. Simulations show that each scenario has different effects on the long-term chaotic behavior of the inventory level, and is able to control aperiodic behavior of inventory level under specific initial conditions. It is established that in order to secure inventory stability, the discount scenario should consider the incoming shipments to the retailer and the potentially maximum demand, instead of the inventory level.