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Ordering bias with two reference profits: Exogenous benchmark and minimum requirement

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  • Wei, Ying
  • Xiong, Sijia
  • Li, Feng

Abstract

This paper studies a newsvendor’s ordering decision with two exogenous reference points: industry benchmark and a minimum requirement on profit, based on which the psychological values are divided into gains, losses, and failures. With the objective to maximise the total expected value, the order quantity is to balance the marginal values of underage and overage costs, losses, and failures. The decision bias relative to a risk-neutral or a loss-averse newsvendor could be positive or negative and significantly determined by the reference profits and the shortage cost. In addition, a wholesale price contract may coordinate the supply chain under certain circumstances.

Suggested Citation

  • Wei, Ying & Xiong, Sijia & Li, Feng, 2019. "Ordering bias with two reference profits: Exogenous benchmark and minimum requirement," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 229-250.
    • Handle: RePEc:eee:transe:v:128:y:2019:i:c:p:229-250
    DOI: 10.1016/j.tre.2019.06.007
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