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The loss-averse newsvendor game

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  • Wang, Charles X.

Abstract

This paper extends the standard newsvendor problem based upon risk neutrality to a game setting where multiple newsvendors with loss aversion preferences are competing for inventory from a risk-neutral supplier. We show that if the supplier allocates the total demand among the newsvendors proportional to their order quantities, then there exists a unique Nash equilibrium order quantity in this newsvendor game. We also find that while the demand-stealing effect increases the total order quantity of the newsvendors, the loss aversion effect decreases the newsvendors' total order quantity and if strong enough, may lead to a lower total inventory level of the decentralized supply chain than that of an integrated supply chain.

Suggested Citation

  • Wang, Charles X., 2010. "The loss-averse newsvendor game," International Journal of Production Economics, Elsevier, vol. 124(2), pages 448-452, April.
    • Handle: RePEc:eee:proeco:v:124:y:2010:i:2:p:448-452
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    References listed on IDEAS

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