Stochastic Stackelberg equilibria with applications to time dependent newsvendor models
AbstractIn this paper we prove a sufficient maximum principle for general stochastic differential Stackelberg games, and apply the theory to continuous time newsvendor problems. In the newsvendor problem a manufacturer sells goods to a retailer, and the objective of both parties is to maximize expected profits under a random demand rate. Our demand rate is an Ito-Levy process, and to increase realism information is delayed, e.g., due to production time. We provide complete existence and uniqueness proofs for a series of special cases, including geometric Brownian motion and the Ornstein-Uhlenbeck process, both with time variable coefficients. Moreover, these results are operational because we are able to offer explicit solution formulas. An interesting finding is that more precise information may be a considerable disadvantage for the retailer.
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Bibliographic InfoPaper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2011/9.
Length: 37 pages
Date of creation: 19 May 2011
Date of revision:
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Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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Stochastic differential games; newsvendor model; delayed information; Ito-Levy processes;
Other versions of this item:
- Øksendal, Bernt & Sandal, Leif & Ubøe, Jan, 2013. "Stochastic Stackelberg equilibria with applications to time-dependent newsvendor models," Journal of Economic Dynamics and Control, Elsevier, vol. 37(7), pages 1284-1299.
- C00 - Mathematical and Quantitative Methods - - General - - - General
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