Impact of Uncertainty and Risk Aversion on Price and Order Quantity in the Newsvendor Problem

2000 ◽  
Vol 2 (4) ◽  
pp. 410-423 ◽  
Author(s):  
Vipul Agrawal ◽  
Sridhar Seshadri
Keyword(s):  
Risk Aversion ◽  
Newsvendor Problem ◽  
Order Quantity

scholarly journals Hedging Risks in the Loss-Averse Newsvendor Problem with Backlogging

Mathematics ◽  
2019 ◽  
Vol 7 (5) ◽  
pp. 429 ◽  
Author(s):  
Xiaoqing Liu ◽  
Felix T. S. Chan ◽  
Xinsheng Xu
Keyword(s):  
Value At Risk ◽  
Profit Maximization ◽  
Newsvendor Problem ◽  
Sensitivity Analyses ◽  
Conditional Value At Risk ◽  
Optimal Order ◽  
Newsvendor Model ◽  
Order Quantity ◽  
Decision Bias ◽  
Optimal Order Quantity

This paper studies the optimal order decisions for the loss-averse newsvendor problem with backordering and contributes to the risk hedging issue in the newsvendor model. The Conditional Value-at-Risk (CVaR) measure is applied to quantify the potential risks for the loss-averse newsvendor in a backordering setting, and we obtain the optimal order quantity for a loss-averse newsvendor to maximize the CVaR of utility. It is found that the optimal order quantity to maximize the CVaR objective could be bigger or smaller than the expected profit maximization (EPM) order quantity, which provides an alternative explanation on decision bias in the newsvendor model. This study also reveals that the optimal order quantity for a loss-averse newsvendor to maximize expected utility with backordering is smaller than the EPM order quantity, which implies that backordering encourages the loss-averse newsvendor to order fewer items. Sensitivity analyses are performed to investigate the properties of the optimal order quantities and managerial insights are suggested. This paper provides a novel method for the risk management of the loss-averse newsvendor model and presents several new ordering policies for the retailers in practice.

scholarly journals Optimal Decision of Deferred Payment Supply Chain considering Bilateral Risk-Aversion Degree

2018 ◽  
Vol 2018 ◽  
pp. 1-11 ◽  
Author(s):  
Liu Liang ◽  
Li Futou
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Wholesale Price ◽  
Conditional Value At Risk ◽  
Optimal Order ◽  
Risk Averse ◽  
Order Quantity ◽  
Initial Capital ◽  
Optimal Order Quantity ◽  
Degree Of Risk

This paper aims to fill up the gap that the previous research has never explored, the deferred payment supply chain with a risk-averse supplier. To this end, the conditional value-at-risk (CVaR) was adopted as a criterion to measure the influence of retailer’s deferred payment on supply chain performance. According to this criterion, the retailer’s optimal order quantity and the supplier’s optimal wholesale price per unit product were investigated under decentralized decision-making. Then, the existence of a unique optimal strategy was discussed for risk-averse supplier and retailer, and the values of risk-averse, initial capital, and wholesale price were calculated in detail. Finally, the theoretical results were testified through a numerical example. It is concluded that retailer’s optimal order quantity is negatively correlated with the wholesale price, initial capital, and degree of risk aversion, so that the retailer can benefit through proper risk aversion; the supplier’s expected profit decreases with the increase in the degree of risk aversion, yet the optimal wholesale price is determined by the degree of risk aversion of supplier and retailer. The research findings shed valuable new light on how to manage a supply chain involving risk-averse supplier and retailer.

scholarly journals The Loss-Averse Newsvendor Problem with Random Yield and Reference Dependence

Mathematics ◽  
2020 ◽  
Vol 8 (8) ◽  
pp. 1231
Author(s):  
Wei Liu ◽  
Shiji Song ◽  
Ying Qiao ◽  
Han Zhao ◽  
Huachang Wang
Keyword(s):  
Loss Aversion ◽  
Reference Point ◽  
Newsvendor Problem ◽  
Optimal Order ◽  
Reference Dependence ◽  
Random Yield ◽  
Order Quantity ◽  
Ordering Policy ◽  
Optimal Ordering Policy ◽  
Optimal Ordering

This paper studies a loss-averse newsvendor problem with reference dependence, where both demand and yield rate are stochastic. We obtain the loss-averse newsvendor’s optimal ordering policy and analyze the effects of loss aversion, reference dependence, random demand and yield on it. It is shown that the loss-averse newsvendor’s optimal order quantity and expected utility decreases in loss aversion level and reference point. Then, that this order quantity may be larger than the risk-neutral one’s if the reference point is less than a negative threshold. In addition, although the effect of random yield leads to an increase in the order quantity, the loss-averse newsvendor may order more than, equal to or less than the classical one, which significantly depends on loss aversion level and reference point. Numerical experiments were conducted to demonstrate our theoretical results.

scholarly journals Bartering: Price-Setting Newsvendor Problem with Barter Exchange

2021 ◽  
Vol 13 (12) ◽  
pp. 6684
Author(s):  
Milena Bieniek
Keyword(s):  
Demand Function ◽  
Social Economic ◽  
Optimal Solution ◽  
Newsvendor Problem ◽  
Optimal Order ◽  
Price Setting ◽  
Order Quantity ◽  
Economic Uncertainty ◽  
Optimal Price ◽  
Dependent Demand

Barter exchange is a system of swapping goods or services for other goods or services in a moneyless and direct manner. Barter has become an effective model of a circular economy because it reduces the consumption impact. Bartering maximizes the utility of assets and existing resources, and can unleash the unspent social, economic, and environmental value of underutilized assets. The present article analyzes the price-setting newsvendor problem with a barter exchange option. The retailer facing a stochastic price-dependent demand sells a product on the market and, additionally, needs another product for its own purposes. Therefore, first, the retailer trades the unsold product for the product it needs by means of barter, and next disposes of the unsold product at a discounted price at the end of the selling season. The retailer’s optimal order quantity and optimal price are derived assuming additive uncertainty in demand. This type of demand function has special characteristics, for example, the actual demand may attain negative values in times of economic uncertainty. The possibility of negative demand realizations is taken into consideration in the study. It proves that, in certain cases, the optimal solution belongs to the set of high barter prices which implies that the actual demand may be negative.

scholarly journals Research on Risk Avoidance and Coordination of Supply Chain Subject Based on Blockchain Technology

2019 ◽  
Vol 11 (7) ◽  
pp. 2182 ◽  
Author(s):  
Liu ◽  
Li ◽  
Qi
Keyword(s):  
Decision Making ◽  
Supply Chain ◽  
Risk Aversion ◽  
Optimal Order ◽  
Order Quantity ◽  
Technology Application ◽  
Blockchain Technology ◽  
Decentralized Decision Making ◽  
Increasing Function ◽  
Weighted Proportion

Based on the influence of block chain technology on information sharing among supply chain participants, mean-CVaR (conditional value at risk) is used to characterize retailers’ risk aversion behavior, while a Stackelberg game is taken to study the optimal decision-making of manufacturers and retailers during decentralized and centralized decision-making processes. Finally, the mean-CVaR-based revenue-sharing contract is used to coordinate the supply chain and profit distribution. The research shows that, under the condition of decentralized decision-making, when the retailer’s optimal order quantity is low, it is an increasing function of the weighted proportion and the risk aversion degree, while, when the retailer’s optimal order quantity is high, it is an increasing function of the weighted proportion, and has nothing to do with the risk aversion degree. The manufacturer’s blockchain technology application degree is a reduction function of the weighted proportion. When the retailer’s order quantity is low, the manufacturer’s blockchain technology application degree is a decreasing function of risk aversion, while, when the retailer’s order quantity is high, the manufacturer’s blockchain technology application is independent of risk aversion. The profit of the supply chain system under centralized decision-making is higher than that of decentralized decision-making. The revenue sharing contract can achieve the coordination of the supply chain to the level of centralized decision-making. Through blockchain technology, transaction costs among members of the supply chain can be reduced, information sharing can be realized, and the benefits of the supply chain can be improved. Finally, the specific numerical simulation is adopted to analyze the weighted proportion, risk aversion and the impact of blockchain technology on the supply chain, and verify the relevant conclusions.

Downside risk-aversion analysis for a single-stage newsvendor problem

2007 ◽  
Vol 12 (2) ◽  
pp. 198-202 ◽  
Author(s):  
Lei Yang ◽  
Chengxiu Gao ◽  
Kebing Chen ◽  
Jianbin Li
Keyword(s):  
Risk Aversion ◽  
Downside Risk ◽  
Newsvendor Problem ◽  
Single Stage ◽  
Downside Risk Aversion

scholarly journals The Optimal Strategies of Risk-Averse Newsvendor Model for a Dyadic Supply Chain with Financing Service

2017 ◽  
Vol 2017 ◽  
pp. 1-15 ◽  
Author(s):  
Jianxin Chen
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Financial Institution ◽  
Risk Measure ◽  
Wholesale Price ◽  
Optimal Strategies ◽  
Bank Loan ◽  
Risk Averse ◽  
Order Quantity ◽  
The Impact

This paper studies the budget-constrained newsvendor problem under risk aversion with financing service and builds a two-stage supply chain decision model on the order quantity and wholesale price. The budget-constrained retailer as a newsvendor faces a nonnegative random demand and the financial institution provides the loan service for the retailer who is risk-averse. This paper first explores the impact of risk aversion on the decisions in financial supply chain. Different from the existing research, we analyze how the financing service of bank loan impacts the risk-averse newsvendor’s decision and how the risk-averse behavior of the retailer influences the optimal strategies in supply chain with CVaR risk measure criterion. It is found that the order quantity decreases in the degree of risk aversion. The optimal order quantity is decreasing in initial budget, wholesale price, and interest rate. It is worth noting that the financing service can improve the profit of the supply chain system when the retailer has a low initial wealth. Finally, to compare with the existing results the theoretical analysis and numerical examples are also illustrated.

scholarly journals Decisions on Dual-Channel Supply Chains under Market Fluctuations and Dual-Risk Aversion

2020 ◽  
Vol 2020 ◽  
pp. 1-13
Author(s):  
Guangdong Liu ◽  
Tianjian Yang ◽  
Yao Wei ◽  
Xuemei Zhang
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Wholesale Price ◽  
Equilibrium Structure ◽  
Selling Price ◽  
Order Quantity ◽  
Power Structures ◽  
Direct Selling ◽  
Dual Channel ◽  
Dual Channel Supply Chain

Considering market fluctuations and risk aversion, this paper analyzes the decisions of a dual-channel supply chain consisting of one manufacturer and one retailer and compares the differences in the centralized structure, manufacturer-dominated structure, retailer-dominated structure, and Nash equilibrium structure. This paper also analyzes the impacts of market fluctuations and risk aversion on supply chain profits. The results show that the direct selling price is not influenced by market fluctuations and risk aversion under the retailer’s risk aversion, and the manufacturer-dominated structure and the retail price, direct selling price, and wholesale price in other power structures are negatively correlated with market fluctuations and risk aversion, but the order quantity in the four power structures is positively correlated with market fluctuations and risk aversion, and the profits of supply chain are impacted differently by the market fluctuations and risk aversion.

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