The effect of yield rate in a general price‐setting newsvendor model with a yield‐dependent secondary market

Abstract

We considered a general price‐setting newsvendor model in which the firm needs to make joint inventory and pricing decisions for short life‐cycle products before the selling season. The firm's production is subject to random yield and the retailer faces uncertain demand. There exists a secondary market for the firm to acquire or dispose of products. We study the effects of yield randomness on optimal decisions and the expected profit in the cost structure, on the condition that the unit prices of the secondary emergency purchase and sale are random functions of the yield. Using the theory of stochastic comparisons, our key findings are as follows. (a) When the unit price of secondary emergency purchase is nonincreasing with the yield realization, a stochastically larger yield rate leads to a higher expected profit for both supply cases. Moreover, for the multiplicative supply case, a stochastically larger yield rate results in a lower optimal sale price, but this is not true in the additive supply case. Numerical examples show that the effect of the yield rate on the optimal order quantity is uncertain for two supply cases. (b) When the unit price of secondary emergency purchase is nonincreasing convexly with the yield realization, a less variable yield rate leads to a higher expected profit for both supply cases. Numerical examples illustrate that the effects of the yield rate on the optimal sale price and the optimal order quantity are also uncertain. (c) Based on graphical comparisons, we find that the effect of yield randomness has a more significant impact on supply chain performance with a yield‐dependent secondary market price than that with a constant secondary market price.

Bartering: Price-Setting Newsvendor Problem with Barter Exchange

“…Recently, the price-setting newsvendor problem with multiple criteria was considered in [36][37][38][39][40][41][42][43][44]. The price-setting newsvendor problem with the mean-variance analysis used in the objective function was carried out in [36,37].…”

“…They proved that the effects of reference dependence and loss aversion were different depending on a particular scenario. Yu et al [41] explored the price-setting newsvendor model, which involves a manufacturer with random yield and a retailer with uncertain demand using stochastic comparisons. Kirshner and Shao [42] studied optimism and overconfidence of a newsvendor modelled as weights on demand and profit.…”

Advance selling under uncertain supply and demand: a robust newsvendor perspective

“…(3) Joint inventory and pricing decisions . In literature, the price‐sensitive demand model has been widely adopted to address joint pricing and inventory decisions (e.g., Whitin, 1955; Petruzzi and Dada, 1999; Feng and Chen, 2011; Kim and Bell, 2015; Yu et al., 2019). Among these, Whitin (1955) is the first to integrate pricing decisions into the newsvendor model.…”

Marketing strategy selection of referral reward under social network: RRWS, RRMS, or dual strategy?

“…Pricing has always been an integral part of product marketing strategies (Coulter and Krishnamoorthy 2013; Taboubi, 2019; Yu et al., 2019). However, intensifying competition has increased the tendency of firms to use information to persuade consumers rather than focus on price (Ramaseshan et al., 2017).…”