Impact of Uncertainty and Risk Aversion on Price and Order Quantity in the Newsvendor Problem

Manufacturing and Service Operations Management - Tập 2 Số 4 - Trang 410-423 - 2000
Vipul Agrawal1, Sridhar Seshadri1
1Operations Management Department, Leonard N. Stern School of Business, New York University, 40 W. 4th Street, Suite 700, New York, New York 10012

Tóm tắt

We consider a single-period inventory model in which a risk-averse retailer faces uncertain customer demand and makes a purchasing-order-quantity and a selling-price decision with the objective of maximizing expected utility. This problem is similar to the classic newsvendor problem, except: (a) the distribution of demand is a function of the selling price, which is determined by the retailer; and (b) the objective of the retailer is to maximize his/her expected utility. We consider two different ways in which price affects the distribution of demand. In the first model, we assume that a change in price affects the scale of the distribution. In the second model, a change in price only affects the location of the distribution. We present methodology by which this problem with two decision variables can be simplified by reducing it to a problem in a single variable. We show that in comparison to a risk-neutral retailer, a risk-averse retailer in the first model will charge a higher price and order less; where as, in the second model a risk-averse retailer will charge a lower price. The implications of these findings for supply-chain strategy and channel design are discussed. Our research provides a better understanding of retailers' pricing behavior that could lead to improved price contracts and channel-management policies.

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Thông tin xuất bản

Manufacturing and Service Operations Management

Tập 2 Số 4

410-423

Thông tin tác giả