Periodic-review inventory models with inventory-level-dependent demand

Demand for some items can depend on the inventory level on display, a phenomenon often exploited by marketing researchers and practitioners. The implications of this phenomenon have received scant attention in the context of periodic-review inventory control models. We develop an approach to model periodic-review production/inventory problems where the demand in any period depends randomly, in a very general form, on the starting inventory level. We first obtain a complete analytical solution for a single-period model. We then investigate two multiperiod models, one with lost sales and the other with backlogging, whose optimal policies turn out to be myopic. Some extensions are also discussed. © 1994 John Wiley & Sons, Inc.