Pricing and the Newsvendor Problem: A Review with Extensions

Petruzzi, Nicholas C.; Dada, Maqbool

doi:10.1287/opre.47.2.183

Cited by 1,472 publications

(997 citation statements)

References 9 publications

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“…Whitin's model (1955), analyzed by Mills (1959), appears to have been the first to consider the simultaneous choice of inventory and prices, equivalent to our no postponement strategy; an integrative review is provided by Petruzzi and Dada (1999). We contribute to this literature by presenting new sufficiency conditions on the hazard rate, by analyzing the impact of zero demand states and by considering price and production postponement.…”

Section: Relationship To the Literaturementioning

confidence: 99%

“…First consider the deterministic problem, which serves as a good base case to study the effect of uncertainty. The optimal capacity-constrained price p det (K) equals max{1 Ϫ K, 1 2 }, as directly follows from Figure 1 (Mills 1959, Petruzzi and Dada 1999, Ha 1997) is to simply assume that P(⍀ 0 ) ϭ 0, which ensures the uniqueness of the constrainedmonopoly price p(K). In general, however, P(⍀ 0 ) need not be zero and there appears to be no simple, general characterization of the class of distributions for which p(K), let alone the solution ( p, K), is unique.…”

Section: Analysis Of Production and No Postponement Strategies 2 Andmentioning

confidence: 99%

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Price Versus Production Postponement: Capacity and Competition

1999

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T his article presents a comparative analysis of possible postponement strategies in a two-stage decision model where firms make three decisions: capacity investment, production (inventory) quantity, and price. Typically, investments are made while the demand curve is uncertain. The strategies differ in the timing of the operational decisions relative to the realization of uncertainty.We show how competition, uncertainty, and the timing of operational decisions influence the strategic investment decision of the firm and its value. In contrast to production postponement, price postponement makes the investment and production (inventory) decisions relatively insensitive to uncertainty. This suggests that managers can make optimal capacity decisions by deterministic reasoning if they have some price flexibility. Under price postponement, additional postponement of production has relatively small incremental value. Therefore, it may be worthwhile to consider flexible ex-post pricing before production postponement reengineering. While more postponement increases firm value, it is counterintuitive that this also makes the optimal capacity decision more sensitive to uncertainty. We highlight the different impact of more timely information, which leads to higher investment and inventories, and of reduced demand uncertainty, which decreases investment and inventories. Our analysis suggests appropriateness conditions for simple make-to-stock and make-to-order strategies. We also present technical sufficiency and uniqueness conditions. Under price postponement, these results extend to oligopolistic and perfect competition for which pure equilibria are derived. Interestingly, the relative value of operational postponement techniques seems to increase as the industry becomes more competitive.

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Section: Relationship To the Literaturementioning

confidence: 99%

Section: Analysis Of Production and No Postponement Strategies 2 Andmentioning

confidence: 99%

Price Versus Production Postponement: Capacity and Competition

1999

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“…Many reviews and extensions to the newsvendor problem have been documented in the literature (Gallego and Moon 1993, Lau and Lau 1996, 1997, Khouja 1999, Petruzzi and Dada 1999, Cachon 2003, Shore 2004, Qin et al 2011. The inferences drawn from this problem aids inventory decision making, capacity planning, yield management, and supply chain contracts in various industries that handle shorter life-cycle products, for example, fashion apparel industries, insurance, hospitality, sporting industries.…”

Section: The Classical Newsvendor Problemmentioning

confidence: 99%

A Review of Behavioral Decision Making in the Newsvendor Problem

Sharma

Nandi

2018

OSCM: An Int. Journal

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Schweitzer and Cachon (2000) demonstrated that choices of decision-maker in the newsvendor problem setting systematically deviate from those that maximize their expected profit. Since then, a large body of empirical and theoretical studies has been published to describe the newsvendor decisionmaking behavior. To establish further, the purpose of this paper is twofold. First, it identifies the various behavioral theories and biases that explain the newsvendor behavior by employing a systematic literature review of peer-reviewed articles published in leading journals from 2000 to 2017. Second, it classifies and analyzes the identified literature from three dimensions of human behavior namely: individual decision making biases, social preferences, and cultural aspects. Our findings from the review show that research has primarily emphasized individual decision making biases while social and cultural aspects lack analysis and are worthy of investigation. Finally, we discuss some directions for future research, followed by the conclusion and limitations of this review.

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“…Lee and Lim consider the multi period models with multiple return levels, and show that the new method provides less risk and higher expected profit [21]. Petruzzi and Dada study an integrated firm's behavior when the firm has to decide the retail price and the stocking quantity at the same time for multiple periods [22]. However neither of these studies considered coordination.…”

Section: Related Researchmentioning

confidence: 99%

Coordinating a Supply Chain with Customer Returns and Two-Period Newsboy Problem Using Insurance Contract

Hematyar¹,

Chaharsooghi²

2014

IJMMM

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Abstract-For improving the operation of supply chain it is necessary to use coordination mechanisms. This paper investigates the subject of coordination in two-level supply chain using contracts mechanism. By applying contractual relationships among members of a supply chain, double marginalization can be eliminated. We consider a supply chain consisting of one manufacturer and one retailer. A stochastic and two-periodic demand is considered. For obtaining more conformation of model with real conditions, it is assumed that the retailer is faced with return of goods from customer. We determine contractual parameters for achieving the coordination. Modeling and determination of parameters will be done in such a way that win-win condition is provided for both members of supply chain. We compare insurance contract with revenue sharing contract. We find that the expected profit of the supplier with insurance contract will be improved in compared with the revenue sharing contract.

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Pricing and the Newsvendor Problem: A Review with Extensions

Cited by 1,472 publications

References 9 publications

Price Versus Production Postponement: Capacity and Competition

Price Versus Production Postponement: Capacity and Competition

A Review of Behavioral Decision Making in the Newsvendor Problem

Coordinating a Supply Chain with Customer Returns and Two-Period Newsboy Problem Using Insurance Contract

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