TECHNICAL NOTE---Robust Newsvendor Competition Under Asymmetric Information

Houyuan Jiang (), Serguei Netessine () and Sergei Savin ()
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Houyuan Jiang: Judge Business School, University of Cambridge, Cambridge CB2 1AG, United Kingdom
Serguei Netessine: Technology and Operations Area, INSEAD, 77305 Fontainebleau, France
Sergei Savin: The Wharton School of Business, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Operations Research, 2011, vol. 59, issue 1, 254-261

Abstract: We generalize analysis of competition among newsvendors to a setting in which competitors possess asymmetric information about future demand realizations, and this information is limited to knowledge of the support of demand distribution. In such a setting, traditional expectation-based optimization criteria are not adequate, and therefore we focus on the alternative criterion used in the robust optimization literature: the absolute regret minimization. We show existence and derive closed-form expressions for the robust optimization Nash equilibrium solution for a game with an arbitrary number of players. This solution allows us to gain insight into the nature of robust asymmetric newsvendor competition. We show that the competitive solution in the presence of information asymmetry is an intuitive extension of the robust solution for the monopolistic newsvendor problem, which allows us to distill the impact of both competition and information asymmetry. In addition, we show that, contrary to the intuition, a competing newsvendor does not necessarily benefit from having better information about its own demand distribution than its competitor has.

Keywords: robust optimization; newsvendor competition; absolute regret; asymmetric information; robust optimization equilibrium (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (11)

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