IDEAS home Printed from https://ideas.repec.org/a/spr/flsman/v36y2024i1d10.1007_s10696-022-09472-9.html
   My bibliography  Save this article

The max–min newsvendor pricing problem under conditional value-at-risk criterion

Author

Listed:
  • Wenyou Wang

    (Shanghai University of Finance and Economics)

  • Yao Yang

    (Shanghai University of Finance and Economics)

  • Sirong Luo

    (Shanghai University of Finance and Economics)

Abstract

This paper studies a risk-averse newsvendor pricing model with limited demand information under the conditional value-at-risk (CVaR) criterion. The paper uses a max–min approach and the objective is to maximize the lower bound on the CVaR of the loss, i.e., the negative of profit in the worst possible distribution case. The paper analyzes the optimal ordering and pricing decisions under both multiplicative and additive demand models, identifies the optimality conditions of the lower bound on the CVaR of loss, and obtains the implicit solutions for the optimal price and order quantity. Furthermore, the paper analyzes the sensitivity of optimal solutions with respect to the degree of risk aversion.

Suggested Citation

  • Wenyou Wang & Yao Yang & Sirong Luo, 2024. "The max–min newsvendor pricing problem under conditional value-at-risk criterion," Flexible Services and Manufacturing Journal, Springer, vol. 36(1), pages 71-102, March.
    • Handle: RePEc:spr:flsman:v:36:y:2024:i:1:d:10.1007_s10696-022-09472-9
    DOI: 10.1007/s10696-022-09472-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10696-022-09472-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10696-022-09472-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Nicholas C. Petruzzi & Maqbool Dada, 1999. "Pricing and the Newsvendor Problem: A Review with Extensions," Operations Research, INFORMS, vol. 47(2), pages 183-194, April.
    2. Kamburowski, Jerzy, 2014. "The distribution-free newsboy problem under the worst-case and best-case scenarios," European Journal of Operational Research, Elsevier, vol. 237(1), pages 106-112.
    3. Liao, Yi & Banerjee, Avijit & Yan, Changyuan, 2011. "A distribution-free newsvendor model with balking and lost sales penalty," International Journal of Production Economics, Elsevier, vol. 133(1), pages 224-227, September.
    4. Ye Lu & Miao Song & Yi Yang, 2016. "Joint Inventory and Pricing Coordination with Incomplete Demand Information," Production and Operations Management, Production and Operations Management Society, vol. 25(4), pages 701-718, April.
    5. Varun Gupta & Metin Çakanyıldırım, 2016. "A WTP-Choice Model: Empirical Validation, Competitive and Centralized Pricing," Production and Operations Management, Production and Operations Management Society, vol. 25(11), pages 1866-1884, November.
    6. Qi Feng & Sirong Luo & J. George Shanthikumar, 2020. "Integrating Dynamic Pricing with Inventory Decisions Under Lost Sales," Management Science, INFORMS, vol. 66(5), pages 2232-2247, May.
    7. Diatha Krishna Sundar & K. Ravikumar & Siddharth Mahajan, 2018. "The distribution free newsboy problem with partial information," International Journal of Operational Research, Inderscience Enterprises Ltd, vol. 33(4), pages 481-496.
    8. George E. Monahan & Nicholas C. Petruzzi & Wen Zhao, 2004. "The Dynamic Pricing Problem from a Newsvendor's Perspective," Manufacturing & Service Operations Management, INFORMS, vol. 6(1), pages 73-91, September.
    9. Qiaoming Han & Donglei Du & Luis F. Zuluaga, 2014. "Technical Note---A Risk- and Ambiguity-Averse Extension of the Max-Min Newsvendor Order Formula," Operations Research, INFORMS, vol. 62(3), pages 535-542, June.
    10. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    11. Wang, Charles X. & Webster, Scott & Zhang, Sidong, 2014. "Robust price-setting newsvendor model with interval market size and consumer willingness-to-pay," International Journal of Production Economics, Elsevier, vol. 154(C), pages 100-112.
    12. Zabel, Edward, 1972. "Multiperiod monopoly under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 524-536, December.
    13. T. M. Whitin, 1955. "Inventory Control and Price Theory," Management Science, INFORMS, vol. 2(1), pages 61-68, October.
    14. Georgia Perakis & Guillaume Roels, 2008. "Regret in the Newsvendor Model with Partial Information," Operations Research, INFORMS, vol. 56(1), pages 188-203, February.
    15. Qiu, Ruozhen & Shang, Jennifer & Huang, Xiaoyuan, 2014. "Robust inventory decision under distribution uncertainty: A CVaR-based optimization approach," International Journal of Production Economics, Elsevier, vol. 153(C), pages 13-23.
    16. Zhou, Yan-ju & Chen, Xiao-hong & Wang, Zong-run, 2008. "Optimal ordering quantities for multi-products with stochastic demand: Return-CVaR model," International Journal of Production Economics, Elsevier, vol. 112(2), pages 782-795, April.
    17. Vipul Agrawal & Sridhar Seshadri, 2000. "Impact of Uncertainty and Risk Aversion on Price and Order Quantity in the Newsvendor Problem," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 410-423, July.
    18. Rockafellar, R. Tyrrell & Uryasev, Stanislav, 2002. "Conditional value-at-risk for general loss distributions," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1443-1471, July.
    19. Dai, Jiansheng & Meng, Weidong, 2015. "A risk-averse newsvendor model under marketing-dependency and price-dependency," International Journal of Production Economics, Elsevier, vol. 160(C), pages 220-229.
    20. Gregory D. DeYong, 2020. "The price-setting newsvendor: review and extensions," International Journal of Production Research, Taylor & Francis Journals, vol. 58(6), pages 1776-1804, March.
    21. Wedad Elmaghraby & P{i}nar Keskinocak, 2003. "Dynamic Pricing in the Presence of Inventory Considerations: Research Overview, Current Practices, and Future Directions," Management Science, INFORMS, vol. 49(10), pages 1287-1309, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Qi Feng & Sirong Luo & J. George Shanthikumar, 2020. "Integrating Dynamic Pricing with Inventory Decisions Under Lost Sales," Management Science, INFORMS, vol. 66(5), pages 2232-2247, May.
    2. Xinsheng, Xu & Zhiqing, Meng & Rui, Shen & Min, Jiang & Ping, Ji, 2015. "Optimal decisions for the loss-averse newsvendor problem under CVaR," International Journal of Production Economics, Elsevier, vol. 164(C), pages 146-159.
    3. Wang, Daao & Dimitrov, Stanko & Jian, Lirong, 2020. "Optimal inventory decisions for a risk-averse retailer when offering layaway," European Journal of Operational Research, Elsevier, vol. 284(1), pages 108-120.
    4. Georgia Perakis & Melvyn Sim & Qinshen Tang & Peng Xiong, 2023. "Robust Pricing and Production with Information Partitioning and Adaptation," Management Science, INFORMS, vol. 69(3), pages 1398-1419, March.
    5. Chengzhang Li & Mengshi Lu, 2023. "Joint pricing and inventory management under minimax regret," Production and Operations Management, Production and Operations Management Society, vol. 32(8), pages 2529-2545, August.
    6. Mitra, Subrata, 2018. "Newsvendor problem with clearance pricing," European Journal of Operational Research, Elsevier, vol. 268(1), pages 193-202.
    7. Poormoaied, Saeed & Atan, Zümbül, 2020. "A multi-attribute utility theory approach to ordering policy for perishable items," International Journal of Production Economics, Elsevier, vol. 225(C).
    8. 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.
    9. Rubio-Herrero, Javier & Baykal-Gürsoy, Melike, 2020. "Mean-variance analysis of the newsvendor problem with price-dependent, isoelastic demand," European Journal of Operational Research, Elsevier, vol. 283(3), pages 942-953.
    10. Youhua (Frank) Chen & Saibal Ray & Yuyue Song, 2006. "Optimal pricing and inventory control policy in periodic‐review systems with fixed ordering cost and lost sales," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(2), pages 117-136, March.
    11. Serel, Doğan A., 2017. "A single-period stocking and pricing problem involving stochastic emergency supply," International Journal of Production Economics, Elsevier, vol. 185(C), pages 180-195.
    12. Wen Chen & Adam J. Fleischhacker & Michael N. Katehakis, 2015. "Dynamic pricing in a dual‐market environment," Naval Research Logistics (NRL), John Wiley & Sons, vol. 62(7), pages 531-549, October.
    13. Youhua (Frank) Chen & Minghui Xu & Zhe George Zhang, 2009. "Technical Note---A Risk-Averse Newsvendor Model Under the CVaR Criterion," Operations Research, INFORMS, vol. 57(4), pages 1040-1044, August.
    14. Rongchuan He & Ye Lu, 2021. "A Robust Price‐Setting Newsvendor Problem," Production and Operations Management, Production and Operations Management Society, vol. 30(1), pages 276-292, January.
    15. Qing Li & Shaohui Zheng, 2006. "Joint Inventory Replenishment and Pricing Control for Systems with Uncertain Yield and Demand," Operations Research, INFORMS, vol. 54(4), pages 696-705, August.
    16. Qi Feng & Sirong Luo & Dan Zhang, 2014. "Dynamic Inventory–Pricing Control Under Backorder: Demand Estimation and Policy Optimization," Manufacturing & Service Operations Management, INFORMS, vol. 16(1), pages 149-160, February.
    17. Ayşe Kocabıyıkoğlu & Ioana Popescu, 2011. "An Elasticity Approach to the Newsvendor with Price-Sensitive Demand," Operations Research, INFORMS, vol. 59(2), pages 301-312, April.
    18. Wang, Ruopeng & Wang, Jinting, 2018. "Procurement strategies with quantity-oriented reference point and loss aversion," Omega, Elsevier, vol. 80(C), pages 1-11.
    19. Chahar, Kiran & Taaffe, Kevin, 2009. "Risk averse demand selection with all-or-nothing orders," Omega, Elsevier, vol. 37(5), pages 996-1006, October.
    20. Hanzhang Qin & David Simchi-Levi & Li Wang, 2022. "Data-Driven Approximation Schemes for Joint Pricing and Inventory Control Models," Management Science, INFORMS, vol. 68(9), pages 6591-6609, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:flsman:v:36:y:2024:i:1:d:10.1007_s10696-022-09472-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.