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Inventory Management of Perishable Goods with Overconfident Retailers

Author

Listed:
  • Mingyang Zhang

    (Department of Management Science and Engineering, School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

  • Xufeng Yang

    (Department of Logistics Management, School of Economics and Management, Beijing Jiaotong University, Beijing 100044, China)

  • Taichiu Edwin Cheng

    (Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong SAR, China)

  • Chen Chang

    (Department of Management Science and Engineering, School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

Abstract

In recent years, many retailers sell their products through not only offline but also online platforms. The sales of perishable goods on e-commerce platforms recorded phenomenal growth in 2020. However, some retailers are overconfident and order more products than the optimal ordering quantity, resulting in great losses due to product decay. In this paper, we apply the newsvendor model to analyze the impacts of overconfident behavior on the retailer’s optimal pricing and order quantity decisions and profit. Our model provides the overconfident retailer with a feasible and effective method to adjust optimal ordering and pricing decisions. Through numerical studies, we examine the retailer’s optimal decisions under the scenarios of complete rationality, over-estimation, and over-precision. We find that the over-estimation retailer always orders more products than the optimal order quantity, and the over-precision retailer always orders fewer products than the optimal order quantity. Under some conditions, overconfidence hurts the retailer’s revenue to a large extent. Therefore, it is beneficial for the overconfident retailer to adjust its order quantity according to our research findings.

Suggested Citation

  • Mingyang Zhang & Xufeng Yang & Taichiu Edwin Cheng & Chen Chang, 2022. "Inventory Management of Perishable Goods with Overconfident Retailers," Mathematics, MDPI, vol. 10(10), pages 1-14, May.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:10:p:1716-:d:817670
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    References listed on IDEAS

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    2. Xu, Xianhao & Chen, Cheng & Zou, Bipan & Wang, Hongwei & Li, Zhiwen, 2023. "Shipping before order making: Optimal shipping quantity and pricing decisions under uncertain demand," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 169(C).

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