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Comparing validity of risk measures on newsvendor models in open innovation perspective

Author

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  • Sungyong Choi

    (Division of Business Administration, Yonsei University, Wonju 26493, Republic of Korea)

  • KyungBae Park

    () (Department of Business Administration, Sangji University, Wonju 26339, Republic of Korea)

  • Sang-Oh Shim

    (Department of Business Administration and Accounting, Hanbat National University, Daejeon 34158, Republic of Korea)

Abstract

In the era of Industry 4.0, firms are facing with greater uncertainty. Accordingly, it is important to select quality risk measures to analyze newsvendor problems under risk. Then, open innovation can be a good remedial option for such risk-averse newsvendors because open innovation can offset the profit losses from risk aversion by sharing revenues in supply chains. To find such risk measures in newsvendor problems, we review various risk measures of risk-averse inventory models and existing articles in inventory management literature. Then we provide a logical reasoning and axiomatic framework to evaluate validity of each risk measure in newsvendor problems - consistency to the four axioms in coherent risk measures. In this framework, the underlying assumptions and managerial insights to the newsvendor problems are examined for each risk measure. Consequently, exponential utility function and coherent measures of risk are selected as two plausible risk measures to analyze multi-product risk-averse newsvendor models.

Suggested Citation

  • Sungyong Choi & KyungBae Park & Sang-Oh Shim, 2018. "Comparing validity of risk measures on newsvendor models in open innovation perspective," Journal of Open Innovation: Technology, Market, and Complexity, MDPI, Open Access Journal, vol. 4(1), pages 1-12, January.
  • Handle: RePEc:gam:joitmc:v:4:y:2018:i:1:p:1-:d:130855
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    References listed on IDEAS

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    JEL classification:

    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics

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