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The newsvendor problem with an in-season price adjustment

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  • Chung, Chia-Shin
  • Flynn, James
  • Zhu, Jishan

Abstract

Consider a retailer stocking a seasonal item facing a stochastic demand where information about the demand becomes more accurate as the selling season progresses. The retailer places orders before the start of the season and in-season reorders are not possible. This article extends the classical newsvendor model by allowing the retailer to make an in-season price adjustment after conducting a review and using the realized demand to obtain an accurate estimate of the remaining demand. Our results include answers to the following questions. What price should the retailer choose? How much should the retailer have ordered at the start of the season given the option of adjusting prices in-season? This model was motivated by a problem in car rental revenue management and has applications in perishable assets revenue management (PARM), where price adjustments are needed towards the end of the selling season.

Suggested Citation

  • Chung, Chia-Shin & Flynn, James & Zhu, Jishan, 2009. "The newsvendor problem with an in-season price adjustment," European Journal of Operational Research, Elsevier, vol. 198(1), pages 148-156, October.
    • Handle: RePEc:eee:ejores:v:198:y:2009:i:1:p:148-156
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    References listed on IDEAS

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    Cited by:

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    2. Zhang, Michael & Bell, Peter C. & Cai, Gangshu (George) & Chen, Xiangfeng, 2010. "Optimal fences and joint price and inventory decisions in distinct markets with demand leakage," European Journal of Operational Research, Elsevier, vol. 204(3), pages 589-596, August.
    3. Mehran Ullah & Irfanullah Khan & Biswajit Sarkar, 2019. "Dynamic Pricing in a Multi-Period Newsvendor Under Stochastic Price-Dependent Demand," Mathematics, MDPI, vol. 7(6), pages 1-15, June.
    4. Mou, Shandong & Robb, David J. & DeHoratius, Nicole, 2018. "Retail store operations: Literature review and research directions," European Journal of Operational Research, Elsevier, vol. 265(2), pages 399-422.
    5. Chen, Xiangfeng & Cai, Gangshu (George), 2011. "Joint logistics and financial services by a 3PL firm," European Journal of Operational Research, Elsevier, vol. 214(3), pages 579-587, November.
    6. Rice, Dan Hamilton & Fay, Scott A. & Xie, Jinhong, 2014. "Probabilistic selling vs. markdown selling: Price discrimination and management of demand uncertainty in retailing," International Journal of Research in Marketing, Elsevier, vol. 31(2), pages 147-155.
    7. Wei, Ying & Choi, Tsan-Ming, 2010. "Mean-variance analysis of supply chains under wholesale pricing and profit sharing schemes," European Journal of Operational Research, Elsevier, vol. 204(2), pages 255-262, July.
    8. Khouja, Moutaz, 2016. "Late season low inventory assortment effects in the newsvendor problem," Omega, Elsevier, vol. 63(C), pages 123-133.

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