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Joint order and pricing decisions for fresh produce with put option contracts

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  • Chong Wang
  • Xu Chen

Abstract

This paper investigates a newsvendor problem for fresh produce with put option contracts, in which the stochastic demand is price sensitive. The newsvendor can obtain products by ordering from a firm and return unsold products by purchasing and exercising put options. The fresh produce incurs a circulation loss in quantity during its transportation. The optimal joint order and pricing decisions for the newsvendor are analytically derived in the presence of put option contracts and circulation loss. Moreover, combined with numerical analysis, the optimal order quantity and selling price of the newsvendor are found to decrease with option price, but increase with exercise price and circulation loss, whereas the maximum expected profit is found to decrease with option price and circulation loss, but increase with exercise price. Furthermore, the newsvendor with put option contracts can deal with the risks that caused by demand uncertainty and high circulation loss of fresh produce.

Suggested Citation

  • Chong Wang & Xu Chen, 2018. "Joint order and pricing decisions for fresh produce with put option contracts," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 69(3), pages 474-484, March.
    • Handle: RePEc:taf:tjorxx:v:69:y:2018:i:3:p:474-484
    DOI: 10.1057/s41274-017-0228-1
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    Citations

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    Cited by:

    1. Wenxue Ran & Yajing Chen, 2023. "Fresh Produce Supply Chain Coordination Based on Freshness Preservation Strategy," Sustainability, MDPI, vol. 15(10), pages 1-24, May.
    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).
    3. Alireza Bakhshi & Jafar Heydari, 2023. "An optimal put option contract for a reverse supply chain: case of remanufacturing capacity uncertainty," Annals of Operations Research, Springer, vol. 324(1), pages 37-60, May.
    4. Aijun Liu & Yaxuan Xiao & Xiaohui Ji & Kai Wang & Sang-Bing Tsai & Hui Lu & Jinshi Cheng & Xinjun Lai & Jiangtao Wang, 2018. "A Novel Two-Stage Integrated Model for Supplier Selection of Green Fresh Product," Sustainability, MDPI, vol. 10(7), pages 1-23, July.
    5. Deng Jia & Chong Wang, 2022. "Option Contracts in Fresh Produce Supply Chain with Freshness-Keeping Effort," Mathematics, MDPI, vol. 10(8), pages 1-24, April.
    6. Na Luo & Tava Lennon Olsen & Yanping Liu, 2021. "A Conceptual Framework to Analyze Food Loss and Waste within Food Supply Chains: An Operations Management Perspective," Sustainability, MDPI, vol. 13(2), pages 1-21, January.
    7. Zhou, Haijie & Chen, Kebing & Wang, Shengbin, 2023. "Two-period pricing and inventory decisions of perishable products with partial lost sales," European Journal of Operational Research, Elsevier, vol. 310(2), pages 611-626.
    8. Wang, Chong & Chen, Jing & Chen, Xu, 2019. "The impact of customer returns and bidirectional option contract on refund price and order decisions," European Journal of Operational Research, Elsevier, vol. 274(1), pages 267-279.
    9. Jiarong Luo & Xu Chen & Chong Wang & Gaoxun Zhang, 2021. "Bidirectional options in random yield supply chains with demand and spot price uncertainty," Annals of Operations Research, Springer, vol. 302(1), pages 211-230, July.

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