Pricing to the Scenario: Price-Setting Newsvendor Models for Innovative Products

Abstract

In this paper, we consider a manufacturer who produces and sells a kind of innovative product in the monopoly market environment. Because the life cycle of an innovative product is usually shorter than its procurement lead time, one unique demand quantity (scenario) will occur in the selling season; thus, there is only one chance for the manufacturer to determine both optimal production quantity and optimal sale price. Considering this one-time feature of such a decision problem, a price-setting newsvendor model for innovative products is proposed. Different to the existing price-setting newsvendor models, the proposed models determine the optimal production quantity and sale price based on some specific state (scenario) which is most applicable for the manufacturer. The theoretical analysis provides managerial insights into the manufacturers’ behaviors in a monopoly market of an innovative product, and several phenomena in the luxury goods market are well explained.

Multi-objective multi-product sustainable newsvendor management in an emerging economy: Evidence and applications

“…Since the original development of the newsvendor model, some improvements were designed for optimizing price as well as order quantity. These works focused on the pricesetting newsvendor problem (Chen et al, 2017;Gursoy, 2018 andMa, 2019). Considering inventory and pricing decisions simultaneously was first presented by Whitin in 1995.…”