The classical assumption in the single-period model is that excess inventor
y is discounted and sold at the end of the period. However, the effects of
large order quantities which may result in excess inventory remaining until
the discount stage on the following period's demand is not considered. For
many products, such as ski equipment and clothing, customers buying large
quantities of these products at the discount stage may reduce their demand
for the same type of product in the next period. Thus, having large amount
of inventory to discount at the end of the period may lead to a reduction i
n next period's demand and therefore may reduce profit. This paper investig
ates the effect of large order quantities on expected profit in the single-
period model. The paper also provides an algorithm for identifying the new
optimal order quantity for the problem under explicit consideration of the
spell over effect of over estimating demand. (C) 2001 Elsevier Science B.V.
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