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The Newsvendor with princing: a stochastic elasticity perspective

Author: Kocabiyikoglu, Ayse ; Popescu, IoanaINSEAD Area: Decision Sciences Series: Working Paper ; 2007/55/DS Publisher: Fontainebleau : INSEAD, 2007.Language: EnglishDescription: 21 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: We introduce a measure of elasticity of stochastic demand, called the elasticity of lost sales, which offers a unifying perspective on the well-known newsvendor with pricing problem. This new concept provides a framework to characterize structural results for coordinated and uncoordinated pricing and inventory strategies. Concavity and submodularity of the profit function and monotonicity of the inventory/price policies are characterized by monotonicity conditions, or bounds, on the lost sales elasticity. These elasticity conditions are satisfied by most relevant demand models in the literature. Our results explain, unify and complement previous work on price-setting newsvendor models. Next title: Elasticity perspective on the newsvendor with price sensitive demand (RV of 2007/55/DS) - Kocabiyikoglu, Ayse;Popescu, Ioana - 2009 - INSEAD Working Paper
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We introduce a measure of elasticity of stochastic demand, called the elasticity of lost sales, which offers a unifying perspective on the well-known newsvendor with pricing problem. This new concept provides a framework to characterize structural results for coordinated and uncoordinated pricing and inventory strategies. Concavity and submodularity of the profit function and monotonicity of the inventory/price policies are characterized by monotonicity conditions, or bounds, on the lost sales elasticity. These elasticity conditions are satisfied by most relevant demand models in the literature. Our results explain, unify and complement previous work on price-setting newsvendor models.

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