Will being an angel bring more harm than good? Altruistic newsvendors with different risk attitudes

Abstract

Altruistic behaviors, which refer to the behaviors such as caring for benefits of others, exist in practice. Altruistic behaviors are widely explored in sociology and economics but under-studied in operational research (OR). In this paper, by exploring the classic newsvendor inventory problems in a two-echelon supply chain, we uncover how an altruistic newsvendor would affect its upstream manufacturer as well as the supply chain's systems performance. To be specific, we model the altruistic newsvendor as one which includes the upstream manufacturer's profit in its objective function. Under the base model with an exogenous wholesale price, we find that the altruistic behavior of the newsvendor who is risk-neutral or risk-seeking appears to be beneficial to the manufacturer and supply chain. However, when the newsvendor is risk-averse, its altruistic behavior is harmful to the manufacturer and supply chain. In the extended model in which the wholesale price is endogenously decided by the manufacturer, we find that the newsvendor's altruistic behavior prompts the manufacturer to raise its wholesale price, which can decrease the expected profits of the newsvendor and the whole supply chain. Owing to the increased wholesale price, if the supply chain consists of two newsvendors, a newsvendor's altruistic behavior can harm both newsvendors and the supply chain. On the contrary, the manufacturer's altruistic behavior can increase the expected profit of the whole supply chain. Moreover, in the presence of a risk-averse or risk-seeking newsvendor, the altruistic manufacturer has an incentive to maximize the whole supply chain's expected profit.