An integrated vendor–buyer inventory model with perfect and monopolistic competitions: an educational note

Customers encountering shortages will respond differently according to the type of commodity and the market environment. Complete backordering is only likely to occur in a monopolistic competition, whereas a complete lost sale is only likely to occur in a perfect competition. In reality, neither market environment exists. Therefore, in an environment with perfect and monopolistic markets, the consideration of partial backordering is a practical approach. In this study, we develop an integrated vendor–buyer inventory model with perfect and monopolistic competitions. Significant cost reduction can be achieved when partial backordering is considered. The inventory model can therefore be used to study the effect of partial backordering in a competitive market.