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How does demand switch affect newsvendor’s inventory decisions?

Author

Listed:
  • Mengmeng Shi
  • Yue Liu
  • Qin Wu
  • Hang Wu

Abstract

We study how demand switch influences the learning behaviour of competing newsvendors, using a simplified newsvendor model featuring two-section demand: high and low demands. The theoretical framework predicts optimal orders at high demand for high-margin markets and low demand for low-margin markets. Additionally, demand switch does not affect the optimal inventory level in high-margin markets, yet it leads to increased inventory levels in low-margin markets. Results from laboratory experiments exhibit significant learning dynamics in ordering trends across treatments. While the aggregate-level experimental data align with the model’s asymmetric impact of demand switch, we find that demand switch impedes newsvendors’ learning towards reaching optimal inventory levels. Analysing individual-level panel data through random effects multinomial logit regressions reveals a consistent tendency among newsvendors to opt for medium-level orders, irrespective of profit margin conditions.

Suggested Citation

  • Mengmeng Shi & Yue Liu & Qin Wu & Hang Wu, 2026. "How does demand switch affect newsvendor’s inventory decisions?," Applied Economics, Taylor & Francis Journals, vol. 58(31), pages 6319-6335, July.
    • Handle: RePEc:taf:applec:v:58:y:2026:i:31:p:6319-6335
    DOI: 10.1080/00036846.2025.2519938
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