Stochastic Stackelberg equilibria with applications to time-dependent newsvendor models

Bernt Øksendal, Leif Sandal () and Jan Ubøe

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 7, 1284-1299

Abstract: In this paper, we prove a maximum principle for general stochastic differential Stackelberg games, and apply the theory to continuous time newsvendor problems. In the newsvendor problem, a manufacturer sells goods to a retailer, and the objective of both parties is to maximize expected profits under a random demand rate. Our demand rate is an Itô–Lévy process, and to increase realism information is delayed, e.g., due to production time. A special feature of our time-continuous model is that it allows for a price-dependent demand, thereby opening for strategies where pricing is used to manipulate the demand.

Keywords: Stochastic differential games; Delayed information; Itô–Lévy processes; Stackelberg equilibria; Newsvendor models; Optimal control of forward-backward stochastic differential equations (search for similar items in EconPapers)
JEL-codes: C44 C61 C73 D81 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Working Paper: Stochastic Stackelberg equilibria with applications to time dependent newsvendor models (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:7:p:1284-1299

DOI: 10.1016/j.jedc.2013.02.010

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