IDEAS home Printed from https://ideas.repec.org/a/pal/jorsoc/v61y2010i6d10.1057_jors.2009.56.html
   My bibliography  Save this article

The newsvendor problem with unknown distribution

Author

Listed:
  • U Benzion

    (Ben-Gurion University of the Negev)

  • Y Cohen

    (The Open University of Israel)

  • T Shavit

    (School of Business, College of Management)

Abstract

Newsvendor theory assumes that the decision-maker faces a known distribution. But in real-life situations, demand distribution is not always known. In the experimental study which this paper presents, half of the participants assuming the newsvendor role were unaware of the underlying demand distribution, while the other half knew the demand distribution. Participants had to decide how many papers to order each day (for 100 days). The experimental findings indicate that subjects who know the demand distribution behave differently to those who do not. However, interestingly enough, knowing the demand distribution does not necessarily lead the subject closer to the optimal solution or improve profits. It was found that supply surplus at a certain period strongly affects the order quantity towards the following period, despite the knowledge of the demand distribution.

Suggested Citation

  • U Benzion & Y Cohen & T Shavit, 2010. "The newsvendor problem with unknown distribution," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(6), pages 1022-1031, June.
    • Handle: RePEc:pal:jorsoc:v:61:y:2010:i:6:d:10.1057_jors.2009.56
    DOI: 10.1057/jors.2009.56
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/jors.2009.56
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/jors.2009.56?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. William S. Lovejoy, 1990. "Myopic Policies for Some Inventory Models with Uncertain Demand Distributions," Management Science, INFORMS, vol. 36(6), pages 724-738, June.
    2. Katy S. Azoury, 1985. "Bayes Solution to Dynamic Inventory Models Under Unknown Demand Distribution," Management Science, INFORMS, vol. 31(9), pages 1150-1160, September.
    3. Khouja, Moutaz, 1999. "The single-period (news-vendor) problem: literature review and suggestions for future research," Omega, Elsevier, vol. 27(5), pages 537-553, October.
    4. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
    5. Claudia Keser & Giuseppe A. Paleologo, 2004. "Experimental Investigation of Supplier-Retailer Contracts: The Wholesale Price Contract," CIRANO Working Papers 2004s-57, CIRANO.
    6. U Benzion & Y Cohen & R Peled & T Shavit, 2008. "Decision-making and the newsvendor problem: an experimental study," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(9), pages 1281-1287, September.
    7. Alfares, Hesham K. & Elmorra, Hassan H., 2005. "The distribution-free newsboy problem: Extensions to the shortage penalty case," International Journal of Production Economics, Elsevier, vol. 93(1), pages 465-477, January.
    8. Gary D. Eppen & Ananth. V. Iyer, 1997. "Improved Fashion Buying with Bayesian Updates," Operations Research, INFORMS, vol. 45(6), pages 805-819, December.
    9. Marshall Fisher & Ananth Raman, 1996. "Reducing the Cost of Demand Uncertainty Through Accurate Response to Early Sales," Operations Research, INFORMS, vol. 44(1), pages 87-99, February.
    10. Martin A. Lariviere & Evan L. Porteus, 1999. "Stalking Information: Bayesian Inventory Management with Unobserved Lost Sales," Management Science, INFORMS, vol. 45(3), pages 346-363, March.
    11. Atkins, Paul W. B. & Wood, Robert E. & Rutgers, Philip J., 2002. "The effects of feedback format on dynamic decision making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 88(2), pages 587-604, July.
    12. Maurice E. Schweitzer & Gérard P. Cachon, 2000. "Decision Bias in the Newsvendor Problem with a Known Demand Distribution: Experimental Evidence," Management Science, INFORMS, vol. 46(3), pages 404-420, March.
    13. T. M. Whitin, 1955. "Inventory Control and Price Theory," Management Science, INFORMS, vol. 2(1), pages 61-68, October.
    14. Diehl, Ernst & Sterman, John D., 1995. "Effects of Feedback Complexity on Dynamic Decision Making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 62(2), pages 198-215, May.
    15. Joseph Johnson & Gerard J. Tellis & Deborah J. Macinnis, 2005. "Losers, Winners, and Biased Trades," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 32(2), pages 324-329, September.
    16. Polatoglu, L. Hakan, 1991. "Optimal order quantity and pricing decisions in single-period inventory systems," International Journal of Production Economics, Elsevier, vol. 23(1-3), pages 175-185, October.
    17. Apostolos N. Burnetas & Craig E. Smith, 2000. "Adaptive Ordering and Pricing for Perishable Products," Operations Research, INFORMS, vol. 48(3), pages 436-443, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Surti, Chirag & Celani, Anthony & Gajpal, Yuvraj, 2020. "The newsvendor problem: The role of prospect theory and feedback," European Journal of Operational Research, Elsevier, vol. 287(1), pages 251-261.
    2. 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.
    3. Helena Gaspars-Wieloch, 2017. "Newsvendor problem under complete uncertainty: a case of innovative products," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 25(3), pages 561-585, September.
    4. Halkos, George & Kevork, Ilias, 2012. "The classical newsvendor model under normal demand with large coefficients of variation," MPRA Paper 40414, University Library of Munich, Germany.
    5. Andrew Manikas & Michael Godfrey, 2014. "Service Chain Coordination Using Salvage Manipulation," International Journal of Management and Marketing Research, The Institute for Business and Finance Research, vol. 7(2), pages 15-27.
    6. Halkos, George & Kevork, Ilias, 2012. "Unbiased estimation of maximum expected profits in the Newsvendor Model: a case study analysis," MPRA Paper 40724, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. U Benzion & Y Cohen & R Peled & T Shavit, 2008. "Decision-making and the newsvendor problem: an experimental study," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(9), pages 1281-1287, September.
    2. Apostolos Burnetas & Stephen Gilbert, 2001. "Future Capacity Procurements Under Unknown Demand and Increasing Costs," Management Science, INFORMS, vol. 47(7), pages 979-992, July.
    3. Boutselis, Petros & McNaught, Ken, 2014. "Finite-Time Horizon Logistics Decision Making Problems: Consideration of a Wider Set of Factors," Chapters from the Proceedings of the Hamburg International Conference of Logistics (HICL), in: Blecker, Thorsten & Kersten, Wolfgang & Ringle, Christian M. (ed.), Innovative Methods in Logistics and Supply Chain Management: Current Issues and Emerging Practices. Proceedings of the Hamburg International Conferenc, volume 19, pages 249-274, Hamburg University of Technology (TUHH), Institute of Business Logistics and General Management.
    4. Mila Nambiar & David Simchi‐Levi & He Wang, 2021. "Dynamic Inventory Allocation with Demand Learning for Seasonal Goods," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 750-765, March.
    5. Glenn, David & Bisi, Arnab & Puterman, Martin L., 2004. "The Bayesian Newsvendors in Supply Chains with Unobserved Lost Sales," Working Papers 04-0110, University of Illinois at Urbana-Champaign, College of Business.
    6. Berk, Emre & Gurler, Ulku & Levine, Richard A., 2007. "Bayesian demand updating in the lost sales newsvendor problem: A two-moment approximation," European Journal of Operational Research, Elsevier, vol. 182(1), pages 256-281, October.
    7. Gen Sakoda & Hideki Takayasu & Misako Takayasu, 2019. "Data Science Solutions for Retail Strategy to Reduce Waste Keeping High Profit," Sustainability, MDPI, vol. 11(13), pages 1-30, June.
    8. Stewart Robinson & Stavrianna Dimitriou & Kathy Kotiadis, 2017. "Addressing the sample size problem in behavioural operational research: simulating the newsvendor problem," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(3), pages 253-268, March.
    9. Woonghee Tim Huh & Paat Rusmevichientong, 2009. "A Nonparametric Asymptotic Analysis of Inventory Planning with Censored Demand," Mathematics of Operations Research, INFORMS, vol. 34(1), pages 103-123, February.
    10. Choi, Tsan-Ming, 2007. "Pre-season stocking and pricing decisions for fashion retailers with multiple information updating," International Journal of Production Economics, Elsevier, vol. 106(1), pages 146-170, March.
    11. Anyan Qi & Hyun-Soo Ahn & Amitabh Sinha, 2017. "Capacity Investment with Demand Learning," Operations Research, INFORMS, vol. 65(1), pages 145-164, February.
    12. Çağrı Haksöz & Sridhar Seshadri, 2004. "Monotone Forecasts," Operations Research, INFORMS, vol. 52(3), pages 478-486, June.
    13. Cheaitou, Ali & Cheaytou, Rima, 2019. "A two-stage capacity reservation supply contract with risky supplier and forecast updating," International Journal of Production Economics, Elsevier, vol. 209(C), pages 42-60.
    14. Li Chen & Erica L. Plambeck, 2008. "Dynamic Inventory Management with Learning About the Demand Distribution and Substitution Probability," Manufacturing & Service Operations Management, INFORMS, vol. 10(2), pages 236-256, May.
    15. Agrawal, Narendra & Smith, Stephen A., 2013. "Optimal inventory management for a retail chain with diverse store demands," European Journal of Operational Research, Elsevier, vol. 225(3), pages 393-403.
    16. Lin, Kyle Y., 2006. "Dynamic pricing with real-time demand learning," European Journal of Operational Research, Elsevier, vol. 174(1), pages 522-538, October.
    17. Xiaomei Ding & Martin L. Puterman & Arnab Bisi, 2002. "The Censored Newsvendor and the Optimal Acquisition of Information," Operations Research, INFORMS, vol. 50(3), pages 517-527, June.
    18. Yingshuai Zhao & Xiaobo Zhao & Zuo-Jun Max Shen, 2016. "On learning process of a newsvendor with censored demand information," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(9), pages 1200-1211, September.
    19. Choi, Tsan-Ming & Chow, Pui-Sze, 2008. "Mean-variance analysis of Quick Response Program," International Journal of Production Economics, Elsevier, vol. 114(2), pages 456-475, August.
    20. Anyan Qi & Hyun-Soo Ahn & Amitabh Sinha, 2017. "Capacity Investment with Demand Learning," Operations Research, INFORMS, vol. 65(1), pages 145-164, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:jorsoc:v:61:y:2010:i:6:d:10.1057_jors.2009.56. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.