The loss-averse newsvendor problem with random yield

Abstract

This paper studies a single-period inventory problem with random yield and demand, where the loss-averse preferences are adopted to describe the retailer’s (newsvendor’s) decision-making behavior. When the loss-averse retailer orders, the fraction of good units in a batch is stochastic. He will choose an order quantity to maximize his expected utility. Both shortage cost and no shortage cost are considered, respectively. The retailer’s optimal ordering policies are obtained, then the impacts of loss aversion, price and cost on the optimal order quantity are analysed. For the model without shortage cost, the loss-averse retailer’s optimal order quantity is always less than the risk-neutral retailer’s, and decreasing in the loss aversion level. While for the model with shortage cost, the loss-averse retailer’s optimal order quantity may be larger than the risk-neutral retailer’s, and increasing in the loss aversion level. Moreover, it may be decreasing in selling price and increasing in purchasing cost, which will never occur in the case of zero shortage cost. The numerical experiments are conducted to demonstrate our theoretical results.

Coordinating a Supply Chain with a Loss-Averse Retailer under Yield and Demand Uncertainties

“…In addition to the studies mentioned above, the works by Liu et al [24] and Güler and Keskin [25] are similar to our study. Liu et al [24] investigated a loss-averse newsvendor model with random yield and demand that considered both a shortage cost setting and no shortage cost setting. They derived the optimal order quantity and analyzed the impact of loss aversion.…”

The Loss-Averse Newsvendor Problem with Random Yield and Reference Dependence

“…Moreover, some researchers incorporated the loss-averse preferences into this problem. Liu et al [33] studied the loss-averse newsvendor problem with random yield, while considering both shortage cost and no shortage cost, respectively. Ma et al [14] assumed that yield rate follows a binomial distribution and also investigated this problem.…”

Coordination of a Random Yield Supply Chain with a Loss-Averse Supplier

“…The papers by Giri [33], Liu et al [34], and X. Li and Y. J. Li [15] are the rare ones to consider both loss aversion and random yield. Giri [33] studied how the loss aversion affects the dual sourcing strategies of a risk-averse retailer who can order from two suppliers, the cheaper one with random yield and the reliable but more expensive one.…”

“…Giri [33] studied how the loss aversion affects the dual sourcing strategies of a risk-averse retailer who can order from two suppliers, the cheaper one with random yield and the reliable but more expensive one. Liu et al [34] also investigated a loss-averse newsvendor model with random yield and stochastic demand. They obtained the optimal order quantity and analyzed the impacts of loss aversion.…”

“…They obtained the optimal order quantity and analyzed the impacts of loss aversion. Giri [33] and Liu et al [34] were still confined to consider loss aversion from the angle of the newsvendor problem. Considering multiplicative and additive random yield risks, X. Li and Y. J. Li [15] investigated the lot-sizing problem in a random yield production system.…”