Manufacturer's pricing strategies in a single-period framework under price-dependent stochastic demand with asymmetric risk-preference information

F J Arcelus (), J. Suresh Kumar () and G Srinivasan
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F J Arcelus: Universidad Pública de Navarra
G Srinivasan: University of New Brunswick

Journal of the Operational Research Society, 2007, vol. 58, issue 11, 1449-1458

Abstract: Abstract This paper considers a single-period problem designed to analyse the pricing strategy of a manufacturer who does not possess full information about the retailer's risk-preferences. The retailer, who faces a price-dependent stochastic demand, is a maximizer of the risk-adjusted expected profit, rather than of the expected profit. The paper first evaluates the implication of the various risk-preferences of the retailer on the manufacturer's policy under a full-information scenario. Then, it considers a partial information scenario and computes the expected value of perfect information. Finally, it assesses the impact on the manufacturer's profit of sharing the retailer's risk through the introduction of a buyback policy. Linear or iso-elastic demand functions and additive or multiplicative demand error structures capture the demand distributions. Analytical results as well as numerical examples illustrate the main features of the model.

Keywords: asymmetric information; risk preferences; inventory; supply chain; newsvendor problem (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (5)

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DOI: 10.1057/palgrave.jors.2602400

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