The loss-averse newsvendor game

Charles Wang

International Journal of Production Economics, 2010, vol. 124, issue 2, 448-452

Abstract: This paper extends the standard newsvendor problem based upon risk neutrality to a game setting where multiple newsvendors with loss aversion preferences are competing for inventory from a risk-neutral supplier. We show that if the supplier allocates the total demand among the newsvendors proportional to their order quantities, then there exists a unique Nash equilibrium order quantity in this newsvendor game. We also find that while the demand-stealing effect increases the total order quantity of the newsvendors, the loss aversion effect decreases the newsvendors' total order quantity and if strong enough, may lead to a lower total inventory level of the decentralized supply chain than that of an integrated supply chain.

Keywords: Inventory; Newsvendor; problem; Loss; aversion; Competition (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:124:y:2010:i:2:p:448-452

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