Effect of the Return Policy in a Continuous-Time Newsvendor Problem

Weiwei Zhang, Zhongfei Li, Ke Fu () and Fan Wang ()
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Weiwei Zhang: School of Mathematics and Computational Science, Sun Yat-sen University, Guangzhou 510275, P. R. China2Department of Mathematics, Huizhou University, Guangdong, 516007, P. R. China
Zhongfei Li: Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou 510275, P. R. China
Ke Fu: Lingnan College, Sun Yat-sen University, Guangzhou 510275, P. R. China
Fan Wang: Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou 510275, P. R. China

Asia-Pacific Journal of Operational Research (APJOR), 2017, vol. 34, issue 06, 1-28

Abstract: This paper studies the stochastic differential Stackelberg game in a continuous-time newsvendor problem with a return policy, in which one supplier sells products to one retailer and the two parties make the decisions sequentially to maximize their own expected profits. When the demand process is a general jump-diffusion process, we provide a general formula for the equilibrium if it exists. When the demand rate is an Ornstein–Uhlenbeck (O–U) process, we prove the existence and uniqueness of the equilibrium and find an explicit expression for the equilibrium. Computational results show that the return policy has significant impact on the Stackelberg equilibrium.

Keywords: Stackelberg equilibrium; continuous-time newsvendor model; return policy; O–U process (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S0217595917500312

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