Mixed contracts for supply chain management based on newsvendor problem by including real option and classic contract with continues demand

Abstract

In this article, we study a newsvendor contracting framework based on real option under continuous stochastic demand. We consider a mixed contract in which the retailer is allowed to order a portion of the product he/she needs, q units, under the influence of the classic newsvendor conditions and Q real options of the same product, to satisfy the rest of her need. We develop a closed form solution for the problem according to the fact that demand is continuous and discussed some its features. In this regard, we illustrate that the outcome of the mixed contract is better, compared to pure real option contract, or classic newsvendor contract.