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Inventory competition for newsvendors under the objective of profit satisficing

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  • Shi, Chunming (Victor)
  • Yang, Shilei
  • Xia, Yu
  • Zhao, Xuan
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    Abstract

    Inventory competition for newsvendors (NVs) has been studied extensively under the objective of expected profit maximization which is based on risk neutrality. In this paper, we study this classic problem under the objective of profit satisficing which is based on downside-risk aversion. Consistent with prior literature, we consider two possible scenarios. In the first scenario, each NV's demand depends on the stocking levels of all NVs other than herself. In this scenario, we show that there is a unique Nash equilibrium where all NVs optimally order as if they were independent. In the second scenario, each NV's demand depends on the stocking levels of all NVs including herself. We prove the existence of Nash equilibrium for both additive and multiplicative forms of demands. As a special case, we also study symmetrical NVs under the proportional allocation model. We show that at equilibrium, if the number of NVs exceeds a threshold, the market becomes highly competitive.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 215 (2011)
    Issue (Month): 2 (December)
    Pages: 367-373

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    Handle: RePEc:eee:ejores:v:215:y:2011:i:2:p:367-373

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Inventory competition Risk aversion Newsvendor Satisficing Game theory;

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    Cited by:
    1. Chernonog, Tatyana & Avinadav, Tal, 2014. "Profit criteria involving risk in price setting of virtual products," European Journal of Operational Research, Elsevier, vol. 236(1), pages 351-360.
    2. Chung, Chia-Shin & Flynn, James & Kuik, Roelof & StaliƄski, Piotr, 2013. "A single-period inventory placement problem for a supply system with the satisficing objective," European Journal of Operational Research, Elsevier, vol. 224(3), pages 520-529.

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