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

Liu, Wei; Song, Shiji; Qiao, Ying; Zhao, Han; Wang, Huachang

doi:10.3390/math8081231

Cited by 6 publications

(6 citation statements)

References 39 publications

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“…First, the reference point in the loss aversion utility function is set to zero to facilitate the analysis. However, some studies (e.g., [50,55]) have pointed out that the reference point has an important effect on the ordering decisions. The model incorporating reference dependence deserves further study.…”

Section: Discussionmentioning

confidence: 99%

“…Finally, the present paper is related to the literature on inventory models incorporating both loss aversion and risk management. Although the inventory research with loss-averse or risk-averse preferences has made a lot of achievements (e.g., [48][49][50][51]), the publications jointly considering both factors are relatively limited. Xu et al [27] study the loss-averse newsvendor problem under CVaR criterion and present management insights on how to balance loss aversion and fill rate.…”

Section: Literature Reviewmentioning

confidence: 99%

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Coping with Loss Aversion and Risk Management in the Supply Chain Coordination

et al. 2021

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In this paper, we apply a combined revenue sharing and buyback contract to investigate the channel coordination of a two-echelon supply chain with a loss-averse retailer. Since loss-averse decision makers usually take on more risks, the Conditional Value-at-Risk (CVaR) measure is introduced to hedge against it and the retailer’s objective is to maximize the CVaR of utility. We obtain the retailer’s optimal order quantity under the combined contract. It is shown that there is a unique wholesale price coordinating the supply chain if the retailer’s confidence level is less than a threshold that is independent of contract parameters. Moreover, a complete sensitivity analysis of parameters is carried out. In particular, the retailer’s optimal order quantity and coordinating wholesale price decreases as the loss aversion or confidence level increases, while it increase as the buyback price or sharing coefficient increases. Furthermore, there exists the situation where the combined contract can coordinate the chain even though neither the revenue sharing nor buyback contract can when the contract parameters are constrained.

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Section: Discussionmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Coping with Loss Aversion and Risk Management in the Supply Chain Coordination

et al. 2021

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“…Wang [18] further developed a newsvendor model to study a competitive market with multiple loss-averse retailers. Liu et al [19] and Qiu et al [20] studied a loss-averse newsvendor problem with reference dependence, while Zhou et al [21] compared the impact of static loss-averse behaviors and dynamic loss-averse behaviors of retailers with demand uncertainty on the decisions and utilities of the supply chain. In this article, we consider both reference dependency and loss aversion of consumers.…”

Section: Literature Reviewmentioning

confidence: 99%

Dual-Channel Supply Chain Coordination with Loss-Averse Consumers

Zhang

Ying

2023

Discrete Dynamics in Nature and Society

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Most studies on supply chain coordination assume that consumers are rational. However, with the development of e-commerce, consumer-bounded rationality has become an important issue with respect to supply chain coordination. Based on the assumption that some consumers are loyal to the offline shop and others are reference-dependent, this article examines the mechanism of vertical restraints and their competitive effects. This research study found that compared with the assumption of rational consumers used in previous literature, vertical restraints help internalize the “channel price gap externality” when consumers are loss averse. When separately operating, the offline shop will set a higher price due to its consumers’ higher loyalty and willingness to pay. However, given the positive externality of this price to the online retail sales, the offline price is still lower than the level under vertical integration. When the upstream manufacturer achieves supply chain coordination with vertical restraint contracts, the channel price gap externality is internalized, and the channel price gap expands to stimulate loss-averse consumers’ purchasing decisions.

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“…While the study extends to information updates, it focuses on the arrival information of previous orders rather than demand information. Liu et al (2020) and Deng MSCRA 5,2 and Zheng (2020) considered the retailer's loss aversion and risk aversion in inventory control problems with random yields and random demands, respectively. Liu et al (2020) employed a newsvendor model, while Deng and Zheng (2020) added chance constraints.…”

Section: Literature Reviewmentioning

confidence: 99%

Inventory control strategy: based on demand forecast error

Zhou,

Shen,

2023

MSCRA

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PurposeThis study examines the relationship between demand forecasting error and retail inventory management in an uncertain supplier yield context. Replenishment is segmented into off-season and peak-season, with the former characterized by longer lead times and higher supply uncertainty. In contrast, the latter incurs higher acquisition costs but ensures certain supply, with the retailer's purchase volume aligning with the acquired volume. Retailers can replenish in both phases, receiving goods before the sales season. This paper focuses on the impact of the retailer's demand forecasting bias on their sales period profits for both phases.Design/methodology/approachThis study adopts a data-driven research approach by drawing inspiration from real data provided by a cooperating enterprise to address research problems. Mathematical modeling is employed to solve the problems, and the resulting optimal strategies are tested and validated in real-world scenarios. Furthermore, the applicability of the optimal strategies is enhanced by incorporating numerical simulations under other general distributions.FindingsThe study's findings reveal that a greater disparity between predicted and actual demand distributions can significantly reduce the profits that a retailer-supplier system can earn, with the optimal purchase volume also being affected. Moreover, the paper shows that the mean of the forecasting error has a more substantial impact on system revenue than the variance of the forecasting error. Specifically, the larger the absolute difference between the predicted and actual means, the lower the system revenue. As a result, managers should focus on improving the quality of demand forecasting, especially the accuracy of mean forecasting, when making replenishment decisions.Practical implicationsThis study established a two-stage inventory optimization model that simultaneously considers random yield and demand forecast quality, and provides explicit expressions for optimal strategies under two specific demand distributions. Furthermore, the authors focused on how forecast error affects the optimal inventory strategy and obtained interesting properties of the optimal solution. In particular, the property that the optimal procurement quantity no longer changes with increasing forecast error under certain conditions is noteworthy, and has not been previously noted by scholars. Therefore, the study fills a gap in the literature.Originality/valueThis study established a two-stage inventory optimization model that simultaneously considers random yield and demand forecast quality, and provides explicit expressions for optimal strategies under two specific demand distributions. Furthermore, the authors focused on how forecast error affects the optimal inventory strategy and obtained interesting properties of the optimal solution. In particular, the property that the optimal procurement quantity no longer changes with increasing forecast error under certain conditions is noteworthy, and has not been previously noted by scholars. Therefore, the study fills a gap in the literature.

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

Cited by 6 publications

References 39 publications

Coping with Loss Aversion and Risk Management in the Supply Chain Coordination

Coping with Loss Aversion and Risk Management in the Supply Chain Coordination

Dual-Channel Supply Chain Coordination with Loss-Averse Consumers

Inventory control strategy: based on demand forecast error

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