Would a risk-averse newsvendor order less at a higher selling price?

Charles X. Wang, Scott Webster, Nallan C. Suresh

Research output: Contribution to journalArticle

81 Citations (Scopus)

Abstract

We model a risk-averse newsvendor's decision-making behavior with some commonly used classes of utility functions within the expected utility theory (EUT) framework. Under fairly general conditions of EUT, we show that a risk-averse newsvendor will order less than an arbitrarily small quantity as selling price gets larger if price is higher than a threshold value, i.e., the optimal order quantity decreases as the selling price increases.

Original languageEnglish (US)
Pages (from-to)544-553
Number of pages10
JournalEuropean Journal of Operational Research
Volume196
Issue number2
DOIs
StatePublished - Jul 16 2009
Externally publishedYes

Fingerprint

Utility Theory
Sales
Expected Utility
Decision making
Threshold Value
Utility Function
Decision Making
Decrease
Risk-averse
Newsvendor
Expected utility theory
Model
Class
Framework
Order quantity
Utility function

Keywords

  • Expected utility theory
  • Newsvendor model
  • Risk aversion

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Modeling and Simulation
  • Information Systems and Management

Cite this

Would a risk-averse newsvendor order less at a higher selling price? / Wang, Charles X.; Webster, Scott; Suresh, Nallan C.

In: European Journal of Operational Research, Vol. 196, No. 2, 16.07.2009, p. 544-553.

Research output: Contribution to journalArticle

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