Abstract
This paper studies the effect of random supply on the inventory decision of a newsvendor. For risk-neutral newsvendor, we find that the optimal order quantity is affected by random yield and the combination of random yield and capacity, but not affected by capacity uncertainty. For risk-averse newsvendor, we consider the newsvendor problem with a Value-at-Risk (VaR) constraint and the newsvendor model with Conditional Value-at-Risk (CVaR) measure. Under the VaR constraint, we find that random supply may lead to an increase or decrease in the optimal order quantity. However, under the CVaR criterion, random supply decreases the order quantity.
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