Abstract
In this paper, we consider a manufacturer who produces and sells a kind of innovative product in the monopoly market environment. Because the life cycle of an innovative product is usually shorter than its procurement lead time, one unique demand quantity (scenario) will occur in the selling season; thus, there is only one chance for the manufacturer to determine both optimal production quantity and optimal sale price. Considering this one-time feature of such a decision problem, a price-setting newsvendor model for innovative products is proposed. Different to the existing price-setting newsvendor models, the proposed models determine the optimal production quantity and sale price based on some specific state (scenario) which is most applicable for the manufacturer. The theoretical analysis provides managerial insights into the manufacturers’ behaviors in a monopoly market of an innovative product, and several phenomena in the luxury goods market are well explained.
Highlights
As a fundamental and important inventory management problem, the newsvendor models have been extensively reviewed [1,2,3,4,5]
Before the selling season, the manufacturer has to make a decision on both the production quantity and the retail price, i.e., the pricing-setting newsvendor problem
That the focusednewsvendor profits of the daring optimal retail price and production quantity are obtained based on the weighted average of all possible higher than the ones of active one; the focused profits of the active manufacturer are higher than the payoffs’
Summary
As a fundamental and important inventory management problem, the newsvendor models have been extensively reviewed [1,2,3,4,5]. Before the selling season, the manufacturer has to make a decision on both the production quantity and the retail price, i.e., the pricing-setting newsvendor problem. Proposed the newsvendor model for innovative products where the manufacturer was in a perfect, competitive market so that the sale price was given. The contributions are as follows: First, the existing price-setting newsvendor models seek optimal inventories and prices to maximize the expected utilities (EUs) In these models, choosing a production quantity is equal to choosing a lottery (or a probability distribution). The scenario-based price-setting newsvendor model is proposed, which is a fundamentally different model for analyzing the newsvendor problems in a monopoly market of an innovative product.
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