THE CUTOFF TRANSACTION SIZE OF A QUADRATIC CONCAVE HOLDING AND PENALTY COST FUNCTIONS TO THE INFORMATION VALUE APPLYING TO THE NEWSBOY MODEL

Chin-Tsai Lin () and Hui-Yin Tsai ()
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Chin-Tsai Lin: Graduate Institute of Business and Management, Yuanpei University of Science and Technology, Hsin Chu 30015, Taiwan, ROC
Hui-Yin Tsai: Graduate Institute of Business and Management, Yuanpei University of Science and Technology, Hsin Chu 30015, Taiwan, ROC

Asia-Pacific Journal of Operational Research (APJOR), 2006, vol. 23, issue 01, 123-139

Abstract: This investigation adopts the perspective of the retailer and incorporates information flow between a retailer and customers. Two new models are considered that differ in terms of information completeness. The first model involves the retailer having incomplete information regarding the state of customers demand, namely extending the model of Dekkeret al.(IIE Transactions, 32, 2000, 461) by considering the quadratic concave holding and penalty cost functions based on the law of diminishing marginal cost to fit in with the some practical situations. Meanwhile, the second model involves the retailer having full information on the state of customers demand. Precise expressions are derived for the expected total profit of these two newsboy models with a cutoff transaction size and compound Poisson demand distribution. It is worthwhile to measure the value of information and identify the effect of factors for enterprise decision making regarding whether or not to pay for information that can help increase profits. Moreover, we adopt and modify the golden section search technique (Haftkaet al., 1990) to determine an optimal order-up-to levelSand a cutoff transaction sizeqsystematically. Finally, numerical examples are given to illustrate the result derived.

Keywords: Cutoff transaction size; newsboy model; concave function (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1142/S0217595906000784

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