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Mixed contracts for the newsvendor problem with real options and discrete demand

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  • Jörnsten, Kurt
  • Lise Nonås, Sigrid
  • Sandal, Leif
  • Ubøe, Jan

Abstract

In this paper we consider the newsvendor model with real options under discrete demand. We consider a mixed contract where the retailer can order a combination of q units subject to the conditions in a classical newsvendor contract and Q real options on the same items. We provide a closed form solution to this mixed contract when the demand is discrete and study some of its properties. In particular we demonstrate that a mixed contract may be superior to a real option contract when a manufacturer has a bound on how much variance she is willing to accept.

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Bibliographic Info

Article provided by Elsevier in its journal Omega.

Volume (Year): 41 (2013)
Issue (Month): 5 ()
Pages: 809-819

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Handle: RePEc:eee:jomega:v:41:y:2013:i:5:p:809-819

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Related research

Keywords: Newsvendor model; Real options; Discrete demand; Mixed contract;

References

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  1. Weng, Z. Kevin, 2004. "Coordinating order quantities between the manufacturer and the buyer: A generalized newsvendor model," European Journal of Operational Research, Elsevier, vol. 156(1), pages 148-161, July.
  2. Seifert, Ralf W. & Thonemann, Ulrich W. & Hausman, Warren H., 2004. "Optimal procurement strategies for online spot markets," European Journal of Operational Research, Elsevier, vol. 152(3), pages 781-799, February.
  3. Chen, Xu & Li, Ling & Zhou, Ming, 2012. "Manufacturer's pricing strategy for supply chain with warranty period-dependent demand," Omega, Elsevier, vol. 40(6), pages 807-816.
  4. Hazra, Jishnu & Mahadevan, B., 2009. "A procurement model using capacity reservation," European Journal of Operational Research, Elsevier, vol. 193(1), pages 303-316, February.
  5. Zhou, Yong-Wu & Wang, Sheng-Dong, 2009. "Manufacturer-buyer coordination for newsvendor-type-products with two ordering opportunities and partial backorders," European Journal of Operational Research, Elsevier, vol. 198(3), pages 958-974, November.
  6. Paul R. Kleindorfer & D. J. Wu, 2003. "Integrating Long- and Short-Term Contracting via Business-to-Business Exchanges for Capital-Intensive Industries," Management Science, INFORMS, vol. 49(11), pages 1597-1615, November.
  7. Wu, D. J. & Kleindorfer, P. R. & Zhang, Jin E., 2002. "Optimal bidding and contracting strategies for capital-intensive goods," European Journal of Operational Research, Elsevier, vol. 137(3), pages 657-676, March.
  8. Gary D. Eppen & Ananth. V. Iyer, 1997. "Backup Agreements in Fashion Buying---The Value of Upstream Flexibility," Management Science, INFORMS, vol. 43(11), pages 1469-1484, November.
  9. A. A. Tsay & W. S. Lovejoy, 1999. "Quantity Flexibility Contracts and Supply Chain Performance," Manufacturing & Service Operations Management, INFORMS, vol. 1(2), pages 89-111.
  10. Li, Shanling & Murat, Alper & Huang, Wanzhen, 2009. "Selection of contract suppliers under price and demand uncertainty in a dynamic market," European Journal of Operational Research, Elsevier, vol. 198(3), pages 830-847, November.
  11. Apostolos Burnetas & Peter Ritchken, 2005. "Option Pricing with Downward-Sloping Demand Curves: The Case of Supply Chain Options," Management Science, INFORMS, vol. 51(4), pages 566-580, April.
  12. Dawn Barnes-Schuster & Yehuda Bassok & Ravi Anupindi, 2002. "Coordination and Flexibility in Supply Contracts with Options," Manufacturing & Service Operations Management, INFORMS, vol. 4(3), pages 171-207, May.
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Cited by:
  1. Adkins, Roger & Paxson, Dean, 2013. "Deterministic models for premature and postponed replacement," Omega, Elsevier, vol. 41(6), pages 1008-1019.

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