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The Newsvendor Problem with Advertising Revenue

Author

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  • Zhengping Wu

    (Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

  • Wanshan Zhu

    (Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

  • Pascale Crama

    (Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

Abstract

We study a modified newsvendor model in which the newsvendor obtains a revenue from sales to end users as well as from an advertiser paying to obtain access to those end users. We study the optimal decisions for both a price-taking and a price-setting newsvendor when the advertiser has private information about its willingness to pay for advertisements. We find that the newsvendor's optimal policy excludes advertisers with low willingness to pay and distorts the price and quantity from its system-efficient level to screen the advertiser. Our analysis reveals the different roles that pricing and production quantity play as screening instruments. We perform a numerical analysis to investigate the value of information and the impact of the model parameters.

Suggested Citation

  • Zhengping Wu & Wanshan Zhu & Pascale Crama, 2011. "The Newsvendor Problem with Advertising Revenue," Manufacturing & Service Operations Management, INFORMS, vol. 13(3), pages 281-296, July.
    • Handle: RePEc:inm:ormsom:v:13:y:2011:i:3:p:281-296
    DOI: 10.1287/msom.1100.0318
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    References listed on IDEAS

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    Cited by:

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    2. Liu, Bin & Ma, Xindi & Zhang, Rong, 2014. "Joint decision on pricing and advertising for competing retailers under emergency purchasing," Economic Modelling, Elsevier, vol. 39(C), pages 257-264.
    3. Choi, Tsan-Ming & Liu, Na, 2019. "Optimal advertisement budget allocation and coordination in luxury fashion supply chains with multiple brand-tier products," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 130(C), pages 95-107.
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    5. Jiangtao Wang & Yina Li & Fei Ye & Quan Chen, 2017. "Optimal introduction time decision for holiday products with uncertain market demand," International Journal of Production Research, Taylor & Francis Journals, vol. 55(1), pages 161-175, January.
    6. 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.
    7. Yingxue Zhao & Jiajia Nie & Jing Shao, 2017. "Business strategy analysis for an advertising service supply chain: a study with the publication industry," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(12), pages 1512-1520, December.
    8. Chung‐Yee Lee & Xi Li & Mingzhu Yu, 2015. "The loss‐averse newsvendor problem with supply options," Naval Research Logistics (NRL), John Wiley & Sons, vol. 62(1), pages 46-59, February.
    9. Chen, Xu & Wang, Xiaojun, 2015. "Free or bundled: Channel selection decisions under different power structures," Omega, Elsevier, vol. 53(C), pages 11-20.

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