 Impact of loss aversion on the newsvendor game with product substitutionWei Liu, Shiji Song and Cheng Wu International Journal of Production Economics, 2013, vol. 141, issue 1, 352-359 Abstract: This paper studies a newsvendor game in which two substitutable products are sold by two different retailers (newsvendors) with loss-averse preferences. Each loss-averse retailer facing stochastic customer demand and deterministic substitution rate will make an order quantity decision to maximize his expected utility. Since product substitution causes two retailers to make decisions in a competitive environment, game theory is used to find the retailers' optimal order quantities. It is shown that under certain conditions, there exists a unique Nash equilibrium in the newsvendor game. Under a symmetry assumption, each retailer's equilibrium order quantity is decreasing in the loss aversion coefficient and increasing in the substitution rate. Further, if the effect of loss aversion on the order quantity is strong enough to dominate the effect of competition, the total inventory level of a decentralized supply chain will be lower than that of a centralized supply chain. Numerical experiments are conducted to illustrate our results. Keywords: Inventory; Product substitution; Loss aversion; Nash equilibrium (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:141:y:2013:i:1:p:352-359 DOI: 10.1016/j.ijpe.2012.08.017 Access Statistics for this article International Journal of Production Economics is currently edited by Stefan Minner More articles in International Journal of Production Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.