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Newsvendor models for innovative products with one-shot decision theory

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  • Guo, Peijun
  • Ma, Xiuyan

Abstract

In this paper, newsvendor problems for innovative products are analyzed. Because the product is new, no relevant historical data is available for statistical demand analysis. Instead of using the probability distribution, the possibility distribution is utilized to characterize the uncertainty of the demand. We consider products whose life cycles are expected to be smaller than the procurement lead times. Determining optimal order quantities of such products is a typical one-shot decision problem for a retailer. Therefore, newsvendor models for innovative products are proposed based on the one-shot decision theory (OSDT). The main contributions of this research are as follows: the general solutions of active, passive, apprehensive and daring focus points and optimal alternatives are proposed and the existence theorem is established in the one-shot decision theory; a simple and effective approach for identifying the possibility distribution is developed; newsvendor models with four types of focus points are built; managerial insights into the behaviors of different types of retailers are gained by the theoretical analysis; the proposed models are scenario-based decision models which provide a fundamental alternative to analyze newsvendor problems for innovative products.

Suggested Citation

  • Guo, Peijun & Ma, Xiuyan, 2014. "Newsvendor models for innovative products with one-shot decision theory," European Journal of Operational Research, Elsevier, vol. 239(2), pages 523-536.
    • Handle: RePEc:eee:ejores:v:239:y:2014:i:2:p:523-536
    DOI: 10.1016/j.ejor.2014.05.028
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    3. Helena Gaspars-Wieloch, 2017. "Newsvendor problem under complete uncertainty: a case of innovative products," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 25(3), pages 561-585, September.
    4. Raza, Syed Asif & Rathinam, Sivakumar, 2017. "A risk tolerance analysis for a joint price differentiation and inventory decisions problem with demand leakage effect," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 129-145.
    5. Xide Zhu & Kevin W. Li & Peijun Guo, 2023. "A bilevel optimization model for the newsvendor problem with the focus theory of choice," 4OR, Springer, vol. 21(3), pages 471-489, September.
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    7. Xide Zhu & Zhiheng Hu & Guihua Lin & Weina Xu, 2023. "Strategy Analysis for Retailer-Leading Supply Chain under Buyback Contract with Focus Theory of Choice," Mathematics, MDPI, vol. 11(3), pages 1-25, January.
    8. Guo, Peijun, 2019. "Focus theory of choice and its application to resolving the St. Petersburg, Allais, and Ellsberg paradoxes and other anomalies," European Journal of Operational Research, Elsevier, vol. 276(3), pages 1034-1043.
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