Abstract
In this paper, we consider newsboy problem under Knightian uncertainty. That is, we assume that the uncertainty of demand is Knightian uncertainty. We use info-gap uncertainty to model the uncertainty of the demand. The objective is to study the robustness of the optimal policy. We first assume that the price is exogenous and then the price is determined endogenously and is a decision variable. We study the optimal policies for the inventory control system with and without price setting under Knightian uncertainty and their robustness. We show that the relative robustness of the sole inventory system and the joint pricing and inventory control with multiplicative demand function to profit loss are the same and higher than that of the joint pricing and inventory control with additive demand function.
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