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July  2017, 13(3): 1417-1429. doi: 10.3934/jimo.2016080

The loss-averse newsvendor problem with random supply capacity

 1 Department of Basic Science, Military Economics Academy, Wuhan 430035, China 2 Department of Automation, Tsinghua University, Beijing 100084, China 3 School of Business Administration, Hubei University of Economics, Wuhan 430205, China

* Corresponding author: Wei Liu

Received  April 2015 Published  October 2016

Fund Project: The paper is supported by Research Fund for the Doctoral Program of Higher Education (No.20120002110035,20130002130010) and Natural Science Foundation of China (No. 61273233)

This paper studies a newsvendor problem with random supply capacity, where the retailer (newsvendor) is loss-averse and the shortage cost is considered. When the retailer orders, the quantity actually received is the minimum between the order quantity and supply capacity, and his objective is to choose an order quantity to maximize the expected utility. It is shown that under different conditions, the loss-averse retailer may order larger than, equal to or less than the risk-neutral one, which is different from the existing result in the case without considering shortage cost. Further, if the shortage cost is less than a critical value, then the loss-averse retailer's optimal order quantity is always less than the risk-neutral retailer's. The numerical experiments are conducted to demonstrate our theoretical results.

Citation: Wei Liu, Shiji Song, Ying Qiao, Han Zhao. The loss-averse newsvendor problem with random supply capacity. Journal of Industrial & Management Optimization, 2017, 13 (3) : 1417-1429. doi: 10.3934/jimo.2016080
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A graphical presentation of demand and capacity outcomes
Optimal order quantity vs loss aversion level for different levels of demand variation
Value of $M(h, Q_0)$ vs shortage cost for different levels of demand variation
Optimal order quantity vs selling price
Optimal order quantity vs purchasing cost
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