The manufacturer's response to stock-outs in a single manufacturer–retailer channel

Product unavailability is a common problem in supply chains with stochastic end-consumer demand and the impact of stock-outs extends beyond the short term to also affect long-term profits. Furthermore, the long-term stock-out effect for the manufacturer is not necessarily the same as the long-term stock-out effect for the retailer owing to brand substitution by the retailer in the event of a stock-out. In this paper, we incorporate the long-term stock-out effects on the manufacturer's profit in a single manufacturer–retailer distribution channel.