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The Newsvendor Problem with Advertising Revenue

Author

Listed:
  • Zhengping Wu

    () (Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

  • Wanshan Zhu

    () (Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

  • Pascale Crama

    () (Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

Abstract

We study a modified newsvendor model in which the newsvendor obtains a revenue from sales to end users as well as from an advertiser paying to obtain access to those end users. We study the optimal decisions for both a price-taking and a price-setting newsvendor when the advertiser has private information about its willingness to pay for advertisements. We find that the newsvendor's optimal policy excludes advertisers with low willingness to pay and distorts the price and quantity from its system-efficient level to screen the advertiser. Our analysis reveals the different roles that pricing and production quantity play as screening instruments. We perform a numerical analysis to investigate the value of information and the impact of the model parameters.

Suggested Citation

  • Zhengping Wu & Wanshan Zhu & Pascale Crama, 2011. "The Newsvendor Problem with Advertising Revenue," Manufacturing & Service Operations Management, INFORMS, vol. 13(3), pages 281-296, July.
  • Handle: RePEc:inm:ormsom:v:13:y:2011:i:3:p:281-296
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    File URL: http://dx.doi.org/10.1287/msom.1100.0318
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:ejores:v:264:y:2018:i:1:p:181-199 is not listed on IDEAS
    2. Liu, Bin & Ma, Xindi & Zhang, Rong, 2014. "Joint decision on pricing and advertising for competing retailers under emergency purchasing," Economic Modelling, Elsevier, vol. 39(C), pages 257-264.
    3. Wu, Zhengping & Crama, Pascale & Zhu, Wanshan, 2012. "The newsvendor’s optimal incentive contracts for multiple advertisers," European Journal of Operational Research, Elsevier, vol. 220(1), pages 171-181.
    4. Chen, Xu & Wang, Xiaojun, 2015. "Free or bundled: Channel selection decisions under different power structures," Omega, Elsevier, vol. 53(C), pages 11-20.
    5. repec:pal:jorsoc:v:68:y:2017:i:12:d:10.1057_s41274-016-0167-2 is not listed on IDEAS

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