The effect of demand uncertainty in a price-setting newsvendor model

Xu, Man; Chen, Youhua; Xu, Xiaolin

doi:10.1016/j.ejor.2010.06.024

Cited by 75 publications

(38 citation statements)

References 17 publications

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“…This differs ours work from the basic building block formed by Petruzzi and Dada (1999), and other literature (e.g. Chen, Ray, and Song 2006;Xu, Chen, and Xu 2010). For one thing, we formulate the joint ordering and pricing decision model under an option contracts scenario and focus on the effects of option contracts on the newsvendor's decision makings.…”

Section: Literature Reviewmentioning

confidence: 98%

“…They also illustrated that when the replenishment decision has been made, the inventory level decides the value of the optimal price. Xu, Chen, and Xu (2010) examined the effect of demand uncertainty in price-setting newsvendor model. Recently, Yang, Shi, and Zhao (2011) studied ordering and pricing to maximise the probability of achieving both profit and revenue targets simultaneously in the newsvendor model.…”

Section: Literature Reviewmentioning

confidence: 99%

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Optimal ordering policy for a price-setting newsvendor with option contracts under demand uncertainty

Wang

Chen

2015

International Journal of Production Research

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In this article, we investigate the newsvendor problem in a joint ordering and pricing setting in the presence of option contracts under demand uncertainty. At the beginning of a single selling season, the newsvendor who faces additive stochastic demand can obtain goods through two ways: ordering from a firm or purchasing and exercising call options. Single ordering (ordering from a firm only or purchasing and exercising call options only) and mixed ordering (ordering from a firm and purchasing and exercising call options simultaneously) cases are investigated. We find that the newsvendor's optimal pricing and ordering strategies exist and are unique for both cases, respectively. In addition, when both cases are available, mixed ordering is the newsvendor's optimal ordering policy. If only single ordering is available, the newsvendor prefers ordering from a firm when demand risk is low, while enjoys purchasing and exercising call options when demand risk is high. We also find that with option contracts, the newsvendor's optimal order quantity and maximum expected profit are all decreasing in the option price and exercise price of product, while the optimal retail price in terms of option price and exercise price of product are intricate. Moreover, we show that, mixed ordering is more capable to deal with supply price volatility risk.

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Section: Literature Reviewmentioning

confidence: 98%

Section: Literature Reviewmentioning

confidence: 99%

Optimal ordering policy for a price-setting newsvendor with option contracts under demand uncertainty

Wang

Chen

2015

International Journal of Production Research

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“…Besides entropy and variance (see Ebrahimi, Maasoumi, & Soofi, 1999, for further comparison of entropy and variance), other alternative uncertainty measures exist. A popular alternative to study the effects of demand variability is to use stochastic ordering criteria as done in Jemaï and Karaesmen (2005), Song (1994), Song, Zhang, Hou, and Wang (2010), and Xu, Chen, and Xu (2010). In all of these works, the authors confirm the intuition that uncertainty generally leads to increased costs.…”

Section: Entropy Versus Alternative Demand Uncertainty Measuresmentioning

confidence: 59%

On the relationship between entropy, demand uncertainty, and expected loss

Fleischhacker

Fok

2015

European Journal of Operational Research

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“…This is the classic price-setting newsvendor problem (Petruzzi and Dada, 1999) and π is strictly quasiconcave in p 1 and p 2 due to the IFR property (Xu et al, 2010). The optimal quantities and prices are…”

Section: Analysis Frameworkmentioning

confidence: 99%

Coping with Gray Markets: The Impact of Market Conditions and Product Characteristics

2011

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Gray markets, also known as parallel imports, are marketplaces for trading genuine products that are diverted from authorized distribution channels. They have created fierce competition for manufacturers in many industries and each year billions of dollars worth of products are traded in these markets. Using a gametheoretic model, we analyze the impact of parallel importation on a price-setting manufacturer that serves two markets with uncertain demand. We characterize the optimal joint price and quantity decisions of the manufacturer which determine whether the manufacturer should ignore, block, or allow parallel importation.We also show that parallel importation forces the manufacturer to reduce her price gap while demand uncertainty forces her to lower prices in both markets. Moreover, we observe that parallel importation may force the manufacturer to exit the low-profit market. Through extensive numerical experiments, we explore the impact of market conditions (size and price elasticity) and product characteristics (a fashion item or a commodity) on the manufacturer's reaction to parallel importation. In addition, we provide interesting insights about the value of strategic pricing for coping with gray markets versus the uniform pricing policy that has been adopted by some companies to eliminate gray markets.

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The effect of demand uncertainty in a price-setting newsvendor model

Cited by 75 publications

References 17 publications

Optimal ordering policy for a price-setting newsvendor with option contracts under demand uncertainty

Optimal ordering policy for a price-setting newsvendor with option contracts under demand uncertainty

On the relationship between entropy, demand uncertainty, and expected loss

Coping with Gray Markets: The Impact of Market Conditions and Product Characteristics

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