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The effect of advertising on the distribution-free newsboy problem

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  • Lee, Chih-Ming
  • Hsu, Shu-Lu

Abstract

Advertising is very important for the newsboy problem because the shelf-life of the newsboy product is short and advertising may increase sales to avoid overstocking. In this paper, models to study the effect of advertising are developed for the distribution-free newsboy problem where only the mean and variance of the demand are known. As in Khouja and Robbins (2003), it is assumed that the mean demand is an increasing and concave function of advertising expenditure. Three cases are considered: (1) demand has constant variance, (2) demand has constant coefficient of variation, and (3) demand has an increasing coefficient of variation. This paper provides closed-form solutions or steps to solve the problem. Numerical results of the model are also compared with those from other papers. The effects of model parameters on optimal expenditure on advertising, optimal order quantity, and the lower bound on expected profit are derived or discussed.

Suggested Citation

  • Lee, Chih-Ming & Hsu, Shu-Lu, 2011. "The effect of advertising on the distribution-free newsboy problem," International Journal of Production Economics, Elsevier, vol. 129(1), pages 217-224, January.
    • Handle: RePEc:eee:proeco:v:129:y:2011:i:1:p:217-224
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    Cited by:

    1. Roy, Arpita & Sana, Shib Sankar & Chaudhuri, Kripasindhu, 2012. "Optimal replenishment order for uncertain demand in three layer supply chain," Economic Modelling, Elsevier, vol. 29(6), pages 2274-2282.
    2. Wang, Charles X. & Webster, Scott & Zhang, Sidong, 2014. "Robust price-setting newsvendor model with interval market size and consumer willingness-to-pay," International Journal of Production Economics, Elsevier, vol. 154(C), pages 100-112.
    3. Andersson, Jonas & Jörnsten, Kurt & Nonås, Sigrid Lise & Sandal, Leif & Ubøe, Jan, 2013. "A maximum entropy approach to the newsvendor problem with partial information," European Journal of Operational Research, Elsevier, vol. 228(1), pages 190-200.
    4. Su, Rung Hung & Pearn, Wen Lea, 2011. "Product selection for newsboy-type products with normal demands and unequal costs," International Journal of Production Economics, Elsevier, vol. 132(2), pages 214-222, August.
    5. Chen, Xin & Xu, Weijun & Wu, Meng, 2024. "Newsvendor overconfidence and advertising," Omega, Elsevier, vol. 126(C).
    6. Irfanullah Khan & Biswajit Sarkar, 2021. "Transfer of Risk in Supply Chain Management with Joint Pricing and Inventory Decision Considering Shortages," Mathematics, MDPI, vol. 9(6), pages 1-20, March.
    7. Yong-Wu Zhou & Bin Cao & Yuanguang Zhong & Yongzhong Wu, 2017. "Optimal advertising/ordering policy and finance mode selection for a capital-constrained retailer with stochastic demand," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(12), pages 1620-1632, December.
    8. Marziyeh Karimi & Amir Hossein Niknamfar & Seyed Hamid Reza Pasandideh, 2017. "Two-stage single period inventory management for a manufacturing vendor under green-supplier supply chain," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 8(4), pages 704-718, December.
    9. Lee, Yun Shin, 2014. "Management of a periodic-review inventory system using Bayesian model averaging when new marketing efforts are made," International Journal of Production Economics, Elsevier, vol. 158(C), pages 278-289.
    10. Raza, Syed Asif, 2015. "An integrated approach to price differentiation and inventory decisions with demand leakage," International Journal of Production Economics, Elsevier, vol. 164(C), pages 105-117.
    11. Ying Gao & Jianteng Xu & Huixin Xu, 2021. "A Flexible Cap-and-Trade Policy and Limited Demand Information Effects on a Sustainable Supply Chain," Sustainability, MDPI, vol. 13(19), pages 1-23, September.
    12. Mehmet Güray Güler, 2019. "Advertising and forecasting investments of a newsvendor," 4OR, Springer, vol. 17(1), pages 45-73, March.
    13. Dušan Hrabec & Kjetil K. Haugen & Pavel Popela, 2017. "The newsvendor problem with advertising: an overview with extensions," Review of Managerial Science, Springer, vol. 11(4), pages 767-787, October.
    14. Güler, M. Güray, 2014. "A note on: “The effect of optimal advertising on the distribution-free newsboy problem”," International Journal of Production Economics, Elsevier, vol. 148(C), pages 90-92.
    15. Tsao, Yu-Chung, 2015. "Cooperative promotion under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 167(C), pages 45-49.
    16. Ece Zeliha Demirci & Nesim Kohen Erkip, 2020. "Designing intervention scheme for vaccine market: a bilevel programming approach," Flexible Services and Manufacturing Journal, Springer, vol. 32(2), pages 453-485, June.
    17. Mehmet Güray Güler, 2022. "An analysis on the marketing budget of a newsvendor," Operational Research, Springer, vol. 22(3), pages 2587-2603, July.
    18. Hui Yu & Jia Zhai & Guang-Ya Chen, 2016. "Robust Optimization for the Loss-Averse Newsvendor Problem," Journal of Optimization Theory and Applications, Springer, vol. 171(3), pages 1008-1032, December.
    19. Halkos, George & Kevork, Ilias, 2012. "Validity and precision of estimates in the classical newsvendor model with exponential and rayleigh demand," MPRA Paper 36460, University Library of Munich, Germany.
    20. Halkos, George & Kevork, Ilias, 2012. "Evaluating alternative estimators for optimal order quantities in the newsvendor model with skewed demand," MPRA Paper 36205, University Library of Munich, Germany.
    21. Sarkar, Biswajit & Moon, Ilkyeong, 2014. "Improved quality, setup cost reduction, and variable backorder costs in an imperfect production process," International Journal of Production Economics, Elsevier, vol. 155(C), pages 204-213.
    22. Bai, Qingguo & Xu, Jianteng & Gong, Yeming & Chauhan, Satyaveer S., 2022. "Robust decisions for regulated sustainable manufacturing with partial demand information: Mandatory emission capacity versus emission tax," European Journal of Operational Research, Elsevier, vol. 298(3), pages 874-893.
    23. Qingguo Bai & Jianteng Xu & Yuzhong Zhang, 2022. "The distributionally robust optimization model for a remanufacturing system under cap-and-trade policy: a newsvendor approach," Annals of Operations Research, Springer, vol. 309(2), pages 731-760, February.
    24. Demirci, Ece Zeliha & Erkip, Nesim K., 2017. "Designing an intervention strategy for public-interest goods: The California electric vehicle market case," Omega, Elsevier, vol. 69(C), pages 53-69.
    25. Pun, Hubert & Heese, H. Sebastian, 2015. "A note on budget allocation for market research and advertising," International Journal of Production Economics, Elsevier, vol. 166(C), pages 85-89.

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