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Risk averse selective newsvendor problems

Author

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  • Kevin Taaffe
  • Kiran Chahar
  • Deepak Tirumalasetty

Abstract

Consider a firm that offers a product during a single selling season. The firm has the flexibility of choosing which demand sources to serve, but these decisions must be made prior to knowing the actual demand that will materialise in each market. Moreover, we assume that the firm operates on a tight budget and cannot afford to record several successive financial losses spanning consecutive periods. In this case, it is likely that their objective is not only to maximise expected profit, but also to minimise the variance from that goal. We provide insights into the tradeoff between expected profit and demand uncertainty using a mean variance approach. We also present a solution approach, via simulation, to determine a market set (and total order quantity) when the firm's objective is to minimise the probability of receiving a profit below a critical threshold value.

Suggested Citation

  • Kevin Taaffe & Kiran Chahar & Deepak Tirumalasetty, 2008. "Risk averse selective newsvendor problems," International Journal of Operational Research, Inderscience Enterprises Ltd, vol. 3(6), pages 681-703.
    • Handle: RePEc:ids:ijores:v:3:y:2008:i:6:p:681-703
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    Citations

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    Cited by:

    1. Raza, Syed Asif & Rathinam, Sivakumar, 2017. "A risk tolerance analysis for a joint price differentiation and inventory decisions problem with demand leakage effect," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 129-145.
    2. Strinka, Zohar M.A. & Romeijn, H. Edwin & Wu, Jingchen, 2013. "Exact and heuristic methods for a class of selective newsvendor problems with normally distributed demands," Omega, Elsevier, vol. 41(2), pages 250-258.

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