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A Newsvendor Problem Considering Decision Biases of Strategic Customers with Private Product Value Information

Author

Listed:
  • Yanan Song

    (School of Economics and Management, University of Science and Technology Beijing, Xueyuan Road 30, Beijing, P. R. China)

  • Zexin Yue

    (School of Economics and Management, University of Science and Technology Beijing, Xueyuan Road 30, Beijing, P. R. China)

  • Junlin Chen

    (School of Management Science and Engineering, Central University of Finance and Economics, Xueyuan Road 39, Beijing, P. R. China)

  • Xiaobo Zhao

    (Department of Industrial Engineering, Tsinghua University, Shuangqing Road 30, Beijing, P. R. China)

Abstract

In this paper, we consider a newsvendor system with strategic customers, who are boundedly rational and risk averse in terms of buying during the selling season or waiting for a clearance sale with price discounts. The newsvendor’s decision is to determine the optimal stock quantity. An optimization problem is formulated with the incorporation of competition among strategic customers with private product value information. We embed risk aversion within the quantal response equilibrium to characterize the strategic customer behavior. The influences of the decision biases of strategic customers on the newsvendor’s decision and profit are discussed. We find that the risk aversion considered alone always benefits the newsvendor. However, the bounded rationality considered alone benefits the newsvendor conditionally. Combining the two behavioral factor influences, the decision biases cause the newsvendor to order more and be better off when the critical fractile is high but to order less and be worse off when the critical fractile is low.

Suggested Citation

  • Yanan Song & Zexin Yue & Junlin Chen & Xiaobo Zhao, 2024. "A Newsvendor Problem Considering Decision Biases of Strategic Customers with Private Product Value Information," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 41(01), pages 1-25, February.
    • Handle: RePEc:wsi:apjorx:v:41:y:2024:i:01:n:s0217595923500045
    DOI: 10.1142/S0217595923500045
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