Comparing with the traditional retailers, online
retailers are playing quite important roles in the contemporary
retailing channels. They offer more options for their customers,
like flexible delivery, pricing, etc. In this paper, we consider an
inventory system where customers may have different priorities
under the retailer’s capacity. A single supplier who must invest
in capacity to manufacturer and sell products to buyers having
different priorities. The buyers can place pre-orders before their
demand is observed, and can also issue additional orders upon
observing demand information. Since the supplier guarantees
delivery of pre-ordered goods (these are not constrained by the
supplier’s capacity), buyers with lower priorities may consider
pre-ordering in order to secure inventory. We derive optimal
policies for the supplier and buyers. We show surprisingly that it
is optimal for the supplier to set the pre-order price so high that
pre-ordering will not be used much even though pre-ordering
should be of benefit to the supplier due to risk sharing. We also
show that the supplier can make a pricing decision using an
aggregate model.