TY - JOUR
T1 - The effect of supply uncertainty in price-setting newsvendor models
AU - Xu, Minghui
AU - Lu, Ye
PY - 2013/6/16
Y1 - 2013/6/16
N2 - We consider a price-setting newsvendor model in which a firm needs to make joint inventory and pricing decisions before the selling season. The supply process is uncertain such that the received quantity is the product of the order quantity and a random yield rate. Two cost structures are investigated, the in-house production case in which the firm pays for the input quantity and the procurement case in which the firm pays for the quantity received only. Our objective is to investigate the effect of yield randomness on optimal decisions and expected profit. By using the theory of stochastic comparisons, we find that under both cost structures, a less variable yield rate leads to a lower optimal price and a higher expected profit. Moreover, we show that in the in-house production case, a stochastically larger yield rate also results in a lower optimal price and a higher profit, but this is not true in the procurement case. Examples show that the effect of supply uncertainty on optimal order quantity is not universal. © 2012 Elsevier B.V. All rights reserved.
AB - We consider a price-setting newsvendor model in which a firm needs to make joint inventory and pricing decisions before the selling season. The supply process is uncertain such that the received quantity is the product of the order quantity and a random yield rate. Two cost structures are investigated, the in-house production case in which the firm pays for the input quantity and the procurement case in which the firm pays for the quantity received only. Our objective is to investigate the effect of yield randomness on optimal decisions and expected profit. By using the theory of stochastic comparisons, we find that under both cost structures, a less variable yield rate leads to a lower optimal price and a higher expected profit. Moreover, we show that in the in-house production case, a stochastically larger yield rate also results in a lower optimal price and a higher profit, but this is not true in the procurement case. Examples show that the effect of supply uncertainty on optimal order quantity is not universal. © 2012 Elsevier B.V. All rights reserved.
KW - Emergency supply option
KW - Price-dependent newsvendor model
KW - Stochastic comparisons
KW - Supply uncertainty
UR - http://www.scopus.com/inward/record.url?scp=84875444215&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-84875444215&origin=recordpage
U2 - 10.1016/j.ejor.2012.12.008
DO - 10.1016/j.ejor.2012.12.008
M3 - 21_Publication in refereed journal
VL - 227
SP - 423
EP - 433
JO - European Journal of Operational Research
JF - European Journal of Operational Research
SN - 0377-2217
IS - 3
ER -