Inventory Management of Perishable Goods with Overconfident Retailers

Mingyang Zhang, Xufeng Yang, Taichiu Edwin Cheng and Chen Chang
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Mingyang Zhang: Department of Management Science and Engineering, School of Economics and Management, Beijing Forestry University, Beijing 100083, China
Xufeng Yang: Department of Logistics Management, School of Economics and Management, Beijing Jiaotong University, Beijing 100044, China
Taichiu Edwin Cheng: Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong SAR, China
Chen Chang: Department of Management Science and Engineering, School of Economics and Management, Beijing Forestry University, Beijing 100083, China

Mathematics, 2022, vol. 10, issue 10, 1-14

Abstract: In recent years, many retailers sell their products through not only offline but also online platforms. The sales of perishable goods on e-commerce platforms recorded phenomenal growth in 2020. However, some retailers are overconfident and order more products than the optimal ordering quantity, resulting in great losses due to product decay. In this paper, we apply the newsvendor model to analyze the impacts of overconfident behavior on the retailer’s optimal pricing and order quantity decisions and profit. Our model provides the overconfident retailer with a feasible and effective method to adjust optimal ordering and pricing decisions. Through numerical studies, we examine the retailer’s optimal decisions under the scenarios of complete rationality, over-estimation, and over-precision. We find that the over-estimation retailer always orders more products than the optimal order quantity, and the over-precision retailer always orders fewer products than the optimal order quantity. Under some conditions, overconfidence hurts the retailer’s revenue to a large extent. Therefore, it is beneficial for the overconfident retailer to adjust its order quantity according to our research findings.

Keywords: overconfidence; perishable goods; newsvendor problem; simulation (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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