Time On The Electronic Market Trading Of Perishable Product: When To Enter The Market?

In volatile, long-lead time and short selling-season markets, a secondary market enables retailers to update their inventory during the selling season. The decision of when to update involves complicated trade-offs between forecast accuracy, the likelihood of lost sales before/after the trading time and average purchasing cost. We use a two-stage inventory replenishment model to identify the optimal trading time across different scenarios. We find that the optimal trading time is sensitive to spot price pattern, the ratio of retail to wholesale prices, underestimate error and learning speed, but not to demand volatility and overestimate error. Trading too early or too late is never a good decision. The total value of secondary market trading can be dichotomized into value of information learning and value of spot price purchases. Impacts of prior information quality, demand volatility and retail margin on the value of information is discussed. No matter when the trading time is, the trader always buys less from upstream suppliers than he does without secondary markets. One interesting implication is that immediate replenishment when inventory level is low is not always the optimal solution. If information is too bad, it is better to wait, incurring short-term stock-out, to get better information to earn long-term gain. We also studied the impacts of imperfect secondary markets trading and substitutability of secondary markets trading on the optimal trading time and profits.