The Bayesian Newsvendors in Supply Chains with Unobserved Lost Sales

David Glenn, Arnab Bisi and Martin L. Puterman
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David Glenn: U of Illinois at Urbana-Champaign
Arnab Bisi: U of British Columbia
Martin L. Puterman: U of British Columbia

Working Papers from University of Illinois at Urbana-Champaign, College of Business

Abstract: We consider two-echelon supply chains with one supplier and two retailers. Retailers are censored newsvendors facing general parametric demand distributions involving unknown parameters. Using a Bayesian MDP formulation, we investigate how the supplier can make use of the combined information gathered from the retailers' sales data to increase channel profits. We compare among the following three scenarios: (i) supplier shares her (pooled) demand distribution updates with the retailers, (ii) supplier does not use pooled updates, and (iii) integrated firm. We show that buy-back contracts achieve channel coordination in the above system.

Date: 2004-08
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:illbus:04-0110

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