The loss‐averse newsvendor problem with supply options

Lee, Chung Yee; Li, Xi; Yu, Ming L.

doi:10.1002/nav.21613

Cited by 32 publications

(23 citation statements)

References 39 publications

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“…They proved that option contracts benefit both the chain members. Further, Lee and Li (2012) investigated how the newsvendor's loss aversion behaviour affects his ordering decisions with supply options and proposed efficient algorithm to obtain the newsvendor's optimal solution with n options. Chen, Hao, and Li (2014) studied the optimal production decision for a risk-neutral supplier, the optimal ordering decision for a loss-averse retailer and the coordination of the supply chain with option contracts.…”

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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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: 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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“…The retailer primarily order the product (the order quantity is ) from the manufacturer at the constant unit wholesale price , and sells the product to consumers at the unit retail price during the selling season. The product's constant unit manufacturing cost is c. For simplify this problem, the retailer's sales cost, the manufacturer's shortage cost , the retailer's shortage penalty cost and the salvage of unsold products are not considered in this paper ( [9], [11]). To stimulate the market demand, the manufacturer and the retailer carry out cooperative advertising.…”

Section: Assumptions and The Modelmentioning

confidence: 99%

Supply Chain Cooperative Advertising and Ordering Model for the Loss Averse Retailer

Jiang¹

2018

IJAPM

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Abstract:The loss averse retailer sells the newsboy type of product to the consumers in a one-period two-echelon supply chain, where the risk neutral manufacturer supply the product to the retailer. When the market demand only depend on the retailer's advertising investment and is uncertain, this paper discusses the manufacturer's participation rate ,the retailer's advertising expenditures and order quantity decision problems in a Stackelberg game. After characterizing the equilibrium solution of this game, this paper show the effect of each parameter on optimal decisions. The results reveal that the loss averse retailer's optimal order quantity is less than the risk neutral retailer's optimal decision and decrease as the loss aversion level increases. Maybe it's the reason that the upstream manufacturer will share the advertising investment of the downstream retailer, the retailer's optimal local advertising expenditure is yet greater than the risk neutral retailer's optimal decision and is increasing in the loss aversion level. When the degree of loss aversion become larger ,the manufacturer's optimal participation rate first increases and then decreases until zero. The numerical example is given to analyze the effects of parameter on some optimal decisions and also confirm the relevant conclusion.

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“…It is one of the extensions of the classical newsvendor model by considering the endogenous price and refers to the determination of the order quantity and price in order to maximize the newsvendor's expected profit in an uncertain demand framework (see [29,30]). The newsvendor and pricing model is a fundamental and significant model in OM (see [5]) and has attracted continuously extensive attention from both the academia and the practice. We refer the interested readers to [29,[31][32][33] for detailed literature review.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Hence, it is difficult to describe the newsvendor's real decision-making process using the traditional analytical models. In order to bridge the gap between traditional models and real world situations, some scholars conduct studies on the integration of behavioral factors into the traditional analytical models (see [4][5][6]).…”

Section: Introductionmentioning

confidence: 99%

“…The behavioral factors which have been identified in the OM area include bounded rationality (see [6,7]), reference dependence (see [8]), decision bias (see [9]), fairness concern (see [10,11]), overconfidence (see [12]), mental accounting (see [13]), and loss aversion (see [5,14,15]). We will concentrate on the behavioral factor of loss aversion.…”

Section: Introductionmentioning

confidence: 99%

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Joint Inventory, Pricing, and Advertising Decisions with Surplus and Stockout Loss Aversions

Cao

Fan

et al. 2016

Discrete Dynamics in Nature and Society

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The newsvendor models considering decision-makers’ behavioral factors remain a fruitful research area in operation management field in past decade. In this paper, we further extend the current literatures to look into joint inventory, pricing, and advertising decisions considering loss aversion effects under the newsvendor setting. The purpose is to explore how the loss aversions affect the optimal policy of order quantity, price, and advertising effort level. We present an integrated utility model to measure both economic payoff and loss aversion utility of the newsvendor, where surplus loss aversion and stockout loss aversion are first separately defined and quantified. Then, we analyze the optimal solution conditions of the integrated model under exogenous and endogenous price cases, respectively. Under exogenous price case, we find that the uniquely optimal policy exists and is presented in the closed form. Under endogenous price case, the optimal policy is determined under mild conditions; we also provide the solutions when order quantity factor or advertising effort level is fixed in this case. In addition, the sensitivity analysis shows that the loss aversions affect the optimal decisions of order quantity, price, and advertising effort level in a systematic way.

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The loss‐averse newsvendor problem with supply options

Cited by 32 publications

References 39 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

Supply Chain Cooperative Advertising and Ordering Model for the Loss Averse Retailer

Joint Inventory, Pricing, and Advertising Decisions with Surplus and Stockout Loss Aversions

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