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A bilevel optimization model for the newsvendor problem with the focus theory of choice

Author

Listed:
  • Xide Zhu

    (Shanghai University)

  • Kevin W. Li

    (University of Windsor)

  • Peijun Guo

    (Yokohama National University)

Abstract

The newsvendor problem is formulated with the focus theory of choice in which instead of using the expected utility in the existing approaches, the optimal order quantity is determined as per which order quantity’s focus (the most salient demand) is the most preferred. This new formulation is a bilevel optimization problem in which the lower level chooses the focus of each order quantity and the upper level determines the optimal order quantity. The proposed model has maximin upper and lower level programs that are nonsmooth. We derive the optimal order quantity under this new framework and characterize the properties of the optimal solution. The proposed model provides a new perspective to analyze the newsvendor problems.

Suggested Citation

  • Xide Zhu & Kevin W. Li & Peijun Guo, 2023. "A bilevel optimization model for the newsvendor problem with the focus theory of choice," 4OR, Springer, vol. 21(3), pages 471-489, September.
    • Handle: RePEc:spr:aqjoor:v:21:y:2023:i:3:d:10.1007_s10288-022-00520-6
    DOI: 10.1007/s10288-022-00520-6
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    References listed on IDEAS

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    8. Wang, Chao & Guo, Peijun, 2017. "Behavioral models for first-price sealed-bid auctions with the one-shot decision theory," European Journal of Operational Research, Elsevier, vol. 261(3), pages 994-1000.
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