Incremental quantity discounts in a periodic-review stochastic inventory model with a general demand distribution (Q1635441)

Summary: We examine a periodic-review stochastic inventory model in which the buyer places orders to meet stochastic demands under an incremental quantity discount schedule with a single price-break point. With a general demand distribution, we prove the optimality of a state-dependent base-stock policy for the single-period problem and provide simple bounds on the optimal order-up-to levels for the multiple-period problem. We also solve the infinite horizon problem by using the policy iteration method. Our computational results suggest that a state-dependent base-stock policy is also optimal for the multiple-period and infinite-horizon problems.