A study on the cutoff transaction size to the information value applying to the newsboy model

Abstract

This investigation adopts the perspective of the retailer and incorporates information flow between a retailer and customers. Two models are considered which differ in terms of information completeness. The first model involves the retailer having incomplete information regarding the state of customers demand, namely extending the model of Dekker et al. [9] by considering the expected total inventory profit. The second model involves the retailer having full information on the state of customers demand. In addition, this work establishes a new algorithm based one the Golden Section Search Technique of Haftka et al. [11] to improve the inefficient algorithm of Dekker et al. [9] and integral solutions. Precise expressions are derived for the expected total profit of these two newsboy models with a cutoff transaction size and compound Poisson demand distribution through a number of numerical experiments. And the effects of parameters are also studied.