Multi-period pricing and order decisions for fresh produce with option contracts

With the construction of a multi-period newsvendor model, this study examines the ordering behaviour and pricing decisions of a fresh produce firm. The firm ordered the fresh produce via a wholesale price contract and option contract to determine the optimal preliminary order quantity, option order quantity, and retail pricing when faced with price-dependent random demand. We first determine the optimal decision that could be made through the use of the single-period model. The results revealed that the firm’s retail price, option order quantity and total order quantity all increased in the circulation loss rate. In contrast, the preliminary order quantity was found to decrease in the circulation loss rate. In the multi-period model, the retail price and total order quantity were unaffected by the price difference between the regular and concessionary prices, while an increase in the price difference caused an increase in the option order quantity and decrease in the preliminary order quantity in the previous period. Further, a lower discount factor for the concessionary price than for the regular price did not have as much of an effect on the retail price and total order quantity, while a rise in the discount factor led to a fall in the option order quantity as well as a rise in the preliminary order quantity in the previous period.