TY - JOUR
T1 - The effect of demand uncertainty in a price-setting newsvendor model
AU - Xu, Minghui
AU - Chen, Youhua Frank
AU - Xu, Xiaolin
PY - 2010/12/1
Y1 - 2010/12/1
N2 - We study the effects of demand uncertainty on optimal decisions and the expected profit of a price-setting newsvendor who faces either additive or multiplicative stochastic demand. Our key findings are as follows. (1) A stochastically larger demand may even lead to a smaller order size and a lower profit when price is endogenous. (2) A stochastically larger demand will lead to a higher selling price in general for the additive demand case but to a lower selling price under certain mild conditions for the multiplicative demand case. Moreover, if the larger demand can be represented by a transformation of the lower one, it will lead to a higher expected profit for both demand cases. However, except for the setting with a zero shortage cost, a larger demand may not necessarily result in a higher expected profit in general. (3) Under mild conditions, a less variable demand will lead to a higher and lower selling price for the additive and multiplicative demand case, respectively, and a higher expected profit for both cases. © 2010 Elsevier B.V. All rights reserved.
AB - We study the effects of demand uncertainty on optimal decisions and the expected profit of a price-setting newsvendor who faces either additive or multiplicative stochastic demand. Our key findings are as follows. (1) A stochastically larger demand may even lead to a smaller order size and a lower profit when price is endogenous. (2) A stochastically larger demand will lead to a higher selling price in general for the additive demand case but to a lower selling price under certain mild conditions for the multiplicative demand case. Moreover, if the larger demand can be represented by a transformation of the lower one, it will lead to a higher expected profit for both demand cases. However, except for the setting with a zero shortage cost, a larger demand may not necessarily result in a higher expected profit in general. (3) Under mild conditions, a less variable demand will lead to a higher and lower selling price for the additive and multiplicative demand case, respectively, and a higher expected profit for both cases. © 2010 Elsevier B.V. All rights reserved.
KW - Demand uncertainty
KW - Newsvendor
KW - Pricing
KW - Stochastic comparison
UR - http://www.scopus.com/inward/record.url?scp=77955556220&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-77955556220&origin=recordpage
U2 - 10.1016/j.ejor.2010.06.024
DO - 10.1016/j.ejor.2010.06.024
M3 - 21_Publication in refereed journal
VL - 207
SP - 946
EP - 957
JO - European Journal of Operational Research
JF - European Journal of Operational Research
SN - 0377-2217
IS - 2
ER -