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A High-Low Search Algorithm for a Newsboy Problem with Delayed Information Feedback

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  • Diane Reyniers

    (London Business School, London, England)

Abstract

This paper outlines a new approach to the problem of demand uncertainty. It deals with setting optimal supply levels when demand is unknown. The novel feature of this approach is that information is obtained by observing sales. This information is used to determine future supply levels. Thus, supply levels are chosen with a view to current profit and future information. The technical apparatus is based on an extension of the theory of high-low search. We derive an algorithm to determine a sequence of supply quantities which minimizes total costs of over- and undersupply in the most adverse demand conditions. We calculate the value of perfect information, indicating how much a rational risk averse decision maker would be willing to pay to know demand exactly.

Suggested Citation

  • Diane Reyniers, 1990. "A High-Low Search Algorithm for a Newsboy Problem with Delayed Information Feedback," Operations Research, INFORMS, vol. 38(5), pages 838-846, October.
    • Handle: RePEc:inm:oropre:v:38:y:1990:i:5:p:838-846
    DOI: 10.1287/opre.38.5.838
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    Cited by:

    1. Samii, Amir-Behzad, 2016. "Impact of nested inventory allocation policies in a newsvendor setting," International Journal of Production Economics, Elsevier, vol. 181(PA), pages 247-256.
    2. Nicholas C. Petruzzi & Maqbool Dada, 2002. "Dynamic pricing and inventory control with learning," Naval Research Logistics (NRL), John Wiley & Sons, vol. 49(3), pages 303-325, April.
    3. Hassin, Refael & Sarid, Anna, 2018. "Operations research applications of dichotomous search," European Journal of Operational Research, Elsevier, vol. 265(3), pages 795-812.

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