Managing Newsvendors via Demand Shifting

How Demand Allocation Shapes Inventory Decisions Online platforms that fulfill orders for independent sellers often bear inventory costs without choosing how much sellers stock. In the paper “Managing Newsvendors via Demand Shifting,” Yilun Chen and Jiaqi Lu study how reallocating customer demand among substitutable products can influence sellers’ inventory decisions. The platform commits to a demand-shifting rule that effectively alters the demand distribution perceived by the sellers. Its optimal rule reduces demand fluctuations around a target inventory level, making that level attractive to sellers and pooling demand risk across them. The authors characterize this rule in closed form. When shifting demand is inexpensive, the platform can achieve the profit available under centralized inventory control, whereas sellers and customers also benefit. However, when shifting is costly and inventory is expensive for the platform, its optimal intervention can reduce customer service levels. The findings show why platforms should assess how demand allocation changes stocking incentives and customer outcomes.