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Pricing and ordering by a loss averse newsvendor with reference dependence

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  • Bai, Tian
  • Wu, Meng
  • Zhu, Stuart X.

Abstract

This study examines the joint optimization of pricing and ordering decisions for a loss-averse newsvendor with reference dependence. We explore the effects of reference dependence and loss aversion from various aspects. We find that demand type, reference point type and cost setting heavily affect the optimal decisions. For multiplicative demand, reference dependence leads to ordering less. Whether to further raise the price depends on the cost setting. For additive demand, selling fewer (cheaper) is the best in the fixed-amount (fixed-ratio) cost setting. Compared with a deterministic reference point, stochastic reference point has a lower price and a higher inventory level.

Suggested Citation

  • Bai, Tian & Wu, Meng & Zhu, Stuart X., 2019. "Pricing and ordering by a loss averse newsvendor with reference dependence," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 131(C), pages 343-365.
    • Handle: RePEc:eee:transe:v:131:y:2019:i:c:p:343-365
    DOI: 10.1016/j.tre.2019.10.003
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