Bartering: Price-Setting Newsvendor Problem with Barter Exchange

Milena Bieniek

doi:10.3390/su13126684

Abstract

Barter exchange is a system of swapping goods or services for other goods or services in a moneyless and direct manner. Barter has become an effective model of a circular economy because it reduces the consumption impact. Bartering maximizes the utility of assets and existing resources, and can unleash the unspent social, economic, and environmental value of underutilized assets. The present article analyzes the price-setting newsvendor problem with a barter exchange option. The retailer facing a stochastic price-dependent demand sells a product on the market and, additionally, needs another product for its own purposes. Therefore, first, the retailer trades the unsold product for the product it needs by means of barter, and next disposes of the unsold product at a discounted price at the end of the selling season. The retailer’s optimal order quantity and optimal price are derived assuming additive uncertainty in demand. This type of demand function has special characteristics, for example, the actual demand may attain negative values in times of economic uncertainty. The possibility of negative demand realizations is taken into consideration in the study. It proves that, in certain cases, the optimal solution belongs to the set of high barter prices which implies that the actual demand may be negative.

Highlights

Bartering is described as a system of a direct exchange of goods or services for other goods or services without using a medium of exchange, such as money [1]
In this paper, it is shown that the negative actual demand may influence optimal solutions to the newsvendor problem with barter exchange, and not considering this issue may cause sub-optimal solutions to the problem
In particular, allow organizations to free up their cash flow by trading what they have to obtain what they need

Summary

Introduction

Bartering is described as a system of a direct exchange of goods or services for other goods or services without using a medium of exchange, such as money [1]. Circular economy is defined as an economic model whose objective is to produce goods and services in a sustainable way by limiting the consumption and waste of resources, such as raw materials, water, and energy, as well as the production of waste [3,4,5]. The barter system may become an effective model of a circular economy. In bartering, swapping goods and services is based on the mutual and voluntary decision of two persons or enterprises. It is not treated as selling, because goods or services are exchanged based on value, rather than price. The price of the item or service is never equal, but the satisfaction should be so [6]

Objectives

Discussion

Conclusion