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Mean-variance analysis of the newsvendor model with stockout cost

Author

Listed:
  • Wu, Jun
  • Li, Jian
  • Wang, Shouyang
  • Cheng, T.C.E.

Abstract

We study the risk-averse newsvendor model with a mean-variance objective function. We show that stockout cost has a significant impact on the newsvendor's optimal ordering decisions. In particular, with stockout cost, the risk-averse newsvendor does not necessarily order less than the risk-neutral newsvendor. We illustrate this finding analytically for the case where the demand follows the power distribution.

Suggested Citation

  • Wu, Jun & Li, Jian & Wang, Shouyang & Cheng, T.C.E., 2009. "Mean-variance analysis of the newsvendor model with stockout cost," Omega, Elsevier, vol. 37(3), pages 724-730, June.
  • Handle: RePEc:eee:jomega:v:37:y:2009:i:3:p:724-730
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    References listed on IDEAS

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