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Stocking and pricing decisions under endogenous demand and reference point effects

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  • Mandal, Prasenjit
  • Kaul, Rupali
  • Jain, Tarun

Abstract

In this paper, we study the newsvendor’s pricing and stocking decisions under reference point effects. The demand faced by the newsvendor is endogenous and the customers may also decide to procure the product from an outside option. We characterize the firm’s optimal pricing and stocking decisions. Our analysis reveals a threshold policy on the firm’s ordering and pricing decisions while considering the impact of reference point effects. We also find that as the level of optimism increases, the firm’s optimal ordering level decreases and optimal price increases. We further study the impact of loss aversion on the firm’s ordering and pricing decisions.

Suggested Citation

  • Mandal, Prasenjit & Kaul, Rupali & Jain, Tarun, 2018. "Stocking and pricing decisions under endogenous demand and reference point effects," European Journal of Operational Research, Elsevier, vol. 264(1), pages 181-199.
    • Handle: RePEc:eee:ejores:v:264:y:2018:i:1:p:181-199
    DOI: 10.1016/j.ejor.2017.05.053
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    Cited by:

    1. Kirshner, Samuel Nathan & Shao, Lusheng, 2019. "The overconfident and optimistic price-setting newsvendor," European Journal of Operational Research, Elsevier, vol. 277(1), pages 166-173.
    2. Bai, Tian & Wu, Meng & Zhu, Stuart X., 2019. "Pricing and ordering by a loss averse newsvendor with reference dependence," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 131(C), pages 343-365.
    3. Wei, Ying & Xiong, Sijia & Li, Feng, 2019. "Ordering bias with two reference profits: Exogenous benchmark and minimum requirement," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 229-250.
    4. Ruozhen Qiu & Yue Yu & Minghe Sun, 2021. "Joint pricing and stocking decisions for a newsvendor problem with loss aversion and reference point effect," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(2), pages 275-288, March.
    5. 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.
    6. Stefanos Leonardos & Costis Melolidakis & Constandina Koki, 2022. "Monopoly pricing in vertical markets with demand uncertainty," Annals of Operations Research, Springer, vol. 315(2), pages 1291-1318, August.
    7. Wei Liu & Shiji Song & Ying Qiao & Han Zhao & Huachang Wang, 2020. "The Loss-Averse Newsvendor Problem with Random Yield and Reference Dependence," Mathematics, MDPI, vol. 8(8), pages 1-15, July.
    8. Nur Ayvaz‐Çavdaroğlu & Mürüvvet Büyükboyacı, 2022. "Analyzing multiple pricing decisions for substitutes under stochastic demand: An experiment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1351-1361, July.
    9. Jain, Tarun & Hazra, Jishnu & Cheng, T.C.E., 2018. "Sourcing under overconfident buyer and suppliers," International Journal of Production Economics, Elsevier, vol. 206(C), pages 93-109.
    10. Kirshner, Samuel N. & Shao, Lusheng, 2018. "Internal and external reference effects in a two-tier supply chain," European Journal of Operational Research, Elsevier, vol. 267(3), pages 944-957.
    11. Foster, Joshua & Deck, Cary & Farmer, Amy, 2019. "Behavioral demand effects when buyers anticipate inventory shortages," European Journal of Operational Research, Elsevier, vol. 276(1), pages 217-234.

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