A very good afternoon to everyone, today my group will be presenting on the problem of demand uncertainty faced by retailers. Our group researched on 10 relevant journals and we have categorized them into Ordering Policy and Importance of Asymmetric Information.For todays presentation, the first journal will discuss about the gray market problem while the second and third journal will provide potential solutions to the gray market problemBefore we begin, here are some key definitions for the first journal:1. Authorized retailers refer to the channel retailers intend to sell their product at2. Unauthorized retailers refer to the channel used to sell diverted inventory surplus at a markdown price3. Gray markets refers to the summation of all existing unauthorized channelsThe journal aims to explore the impacts of gray market on authorized retailers by comparing across 3 different models. The first model consist of only producers and authorized retailers, the second model consists of an additional unauthorized channel, while the last model adds an additional salvage channel.Assumptions made include:1. Prices are exogenous2. Demand is uncertain3. Demand in both channels are correlated4. Markets are competitiveGray market arises when authorized retailer makes a single purchase order based on forecasted demand. Inventory surplus is then diverted to unauthorized channels (which form a gray market) then to salvage channels.Research results reveal that existence of gray market lower future sales volume for the authorized retailers and they may lose out on price competitiveness. The research also concluded on how different factors affect the quantity diverted. The first factor would be the market size. The expected quantity diverted is:1) Independent of expected authorized demand (denoted by lambda a), BUT2) Increases with expected unauthorized demand (denoted by lambda U)The second factor would be the profit margin levels. Expected quantity diverted will3) Increase with profit margins of all 3 channels Last but not least, increase demand uncertainty in both authorized and unauthorized channels will increase the quantity diverted if inventory level in authorized channel is greater than total demand in both markets.With that, Ill now pass the time to wanyu who will then discuss about the article I just reviewed.

Explanation for the results on qty diverted:The expected quantity diverted will: Remain constant for expected authorized demand (denoted by lambda a), regardless of whether the authorized demand increase or not. Given expected authorized demand, if the expected authorized demand were to increase, then the authorized retailers will also increase the qty they order from producers, thus absolute qty diverted will still remain contant

Increases with expected unauthorized demand (denoted by lambda U) If expectation of unauthorized demand increases, then qty diverted will surely increases as there would be a larger sales volume there, more qty will then be diverted to profit from the larger sales volume

Increases with profit margins of all 3 channels With higher profit margins across all 3 channels, order more to make sure got surplus to divert so as to earn from both channels. Producers will also be more willing to produce moreLast and most importantly, demand uncertainty also affect the amount of quantity diverted. Increases with unauthorized demand uncertainty if total inventory > (total demand in both markets) Increases with authorized demand uncertainty if total inventory > (total demand in both markets) Demand uncertainty increase forecast deviate more from actual demand inventory level higher than combined demand more surplus more qty diverted