A note on limited clearance sale inventory model

The increasing trend in markdowns over the past few decades indicates that over orders and high clearance inventory are becoming a common phenomenon in retailing. When the clearance inventory is high there are many situations wherein the marginal revenue as a result of reducing the clearance price below a particular level is negative. In such situations, the retailer is better off clearing only part of the leftover inventory and disposing the remaining for free. We model the limited clearance sale inventory problem for determining the optimal order quantity, and establish the coordination mechanism for wholesale price, buy-back, revenue sharing and sales rebate contracts.