A risk-averse newsvendor model under marketing-dependency and price-dependency

Jiansheng Dai and Weidong Meng

International Journal of Production Economics, 2015, vol. 160, issue C, 220-229

Abstract: In this paper we analyze a single-period inventory model where a risk-averse newsvendor makes a joint decision on ordering, pricing and marketing under the CVaR risk measure criterion. The newsvendor can exert marketing effort to enhance market demand. We assume that the newsvendor׳s marketing effort affects the scale of the demand distribution and hence to model the marketing-dependent demand as a multiplicative form. We characterize sufficient conditions that guarantee existence and uniqueness of the optimal solutions under some mild assumptions on demand distribution, expected demand function and marketing effort cost, which are widely used in the related literature. We show that the optimal order quantity increases in the newsvendor׳s marketing effort, but the optimal price remains unchanged whether the demand is marketing-dependent or not. Additionally, we explore impact of exogenous parameters, such as unit order cost, salvage value and the newsvendor׳s risk aversion coefficient, on the optimal decision variables, and find that the optimal marketing effort always keeps the same changing direction with the optimal marketing-independent order quantity as the exogenous parameters change. This suggests that impact of the parameters on the optimal order quantity gets strengthened in the case of marketing-dependent demand.

Keywords: Newsvendor model; Marketing-dependency; Price-dependency; CVaR (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:160:y:2015:i:c:p:220-229

DOI: 10.1016/j.ijpe.2014.11.006

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