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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

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.

Suggested Citation

  • Shi, Chunming (Victor) & Yang, Shilei & Xia, Yu & Zhao, Xuan, 2011. "Inventory competition for newsvendors under the objective of profit satisficing," European Journal of Operational Research, Elsevier, vol. 215(2), pages 367-373, December.
  • Handle: RePEc:eee:ejores:v:215:y:2011:i:2:p:367-373
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    References listed on IDEAS

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    1. Geng, Qin & Mallik, Suman, 2007. "Inventory competition and allocation in a multi-channel distribution system," European Journal of Operational Research, Elsevier, vol. 182(2), pages 704-729, October.
    2. Serguei Netessine & Fuqiang Zhang, 2005. "Positive vs. Negative Externalities in Inventory Management: Implications for Supply Chain Design," Manufacturing & Service Operations Management, INFORMS, vol. 7(1), pages 58-73, January.
    3. Yunzeng Wang & Yigal Gerchak, 2001. "Supply Chain Coordination when Demand Is Shelf-Space Dependent," Manufacturing & Service Operations Management, INFORMS, vol. 3(1), pages 82-87, August.
    4. Wang, Qinan & Parlar, Mahmut, 1994. "A three-person game theory model arising in stochastic inventory control theory," European Journal of Operational Research, Elsevier, vol. 76(1), pages 83-97, July.
    5. Shi, Chunming Victor & Zhao, Xuan & Xia, Yu, 2010. "The setting of profit targets for target oriented divisions," European Journal of Operational Research, Elsevier, vol. 206(1), pages 86-92, October.
    6. He, Xiuli & Khouja, Moutaz, 2011. "Pareto analysis of supply chain contracts under satisficing objectives," European Journal of Operational Research, Elsevier, vol. 214(1), pages 53-66, October.
    7. Xuan Zhao & Derek R. Atkins, 2008. "Newsvendors Under Simultaneous Price and Inventory Competition," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 539-546, September.
    8. Shipley, David D, 1981. "Pricing Objectives in British Manufacturing Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 29(4), pages 429-443, June.
    9. Wang, Charles X. & Webster, Scott, 2009. "The loss-averse newsvendor problem," Omega, Elsevier, vol. 37(1), pages 93-105, February.
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    Citations

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    Cited by:

    1. Pinto, Roberto, 2016. "Stock rationing under a profit satisficing objective," Omega, Elsevier, vol. 65(C), pages 55-68.
    2. 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.
    3. Yang, Shilei & Shi, Chunming (Victor) & Zhang, Yibin & Zhu, Jing, 2014. "Price competition for retailers with profit and revenue targets," International Journal of Production Economics, Elsevier, vol. 154(C), pages 233-242.
    4. Avinadav, Tal & Chernonog, Tatyana & Perlman, Yael, 2014. "Analysis of protection and pricing strategies for digital products under uncertain demand," International Journal of Production Economics, Elsevier, vol. 158(C), pages 54-64.
    5. 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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