Overconfident Newsvendor’s Joint Pricing and Ordering Decisions under the Additive Demand Case

  •  Li Ying    
  •  Guo Gui-hang    


Booming cross-border e-commerce in China has made market demand become more uncertain and volatile, which has imposed more challenges on the pricing and ordering decisions of retailers. More behavioral and cognitive factors need to be taken consideration in operations management and inventory management in particular. Aiming at newsvendor’s overconfidence psychology, we define newsvendor overconfidence under the additive demand case where demand is price dependent, construct the decision model, derive the optimal joint pricing and ordering decisions and analyze structural properties. The analysis proposes the sufficient condition for the existence of the unique optimal price and order quantity. And we find that the optimal price and stock factor both increase with newsvendor’s overconfidence level. Finally, the effect of overconfidence level on optimal decisions is verified through a numerical example and some practical implications are highlighted.

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