Pricing and ordering by a loss averse newsvendor with reference dependence

Tian Bai, Meng Wu and Stuart X. Zhu

Transportation Research Part E: Logistics and Transportation Review, 2019, vol. 131, issue C, 343-365

Abstract: This study examines the joint optimization of pricing and ordering decisions for a loss-averse newsvendor with reference dependence. We explore the effects of reference dependence and loss aversion from various aspects. We find that demand type, reference point type and cost setting heavily affect the optimal decisions. For multiplicative demand, reference dependence leads to ordering less. Whether to further raise the price depends on the cost setting. For additive demand, selling fewer (cheaper) is the best in the fixed-amount (fixed-ratio) cost setting. Compared with a deterministic reference point, stochastic reference point has a lower price and a higher inventory level.

Keywords: Newsvendor problem; Loss aversion; Reference dependence; Pricing (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (24)

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DOI: 10.1016/j.tre.2019.10.003

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