Mean-variance analysis of the newsvendor model with stockout cost

We study the risk-averse newsvendor model with a mean-variance objective function. We show that stockout cost has a significant impact on the newsvendor's optimal ordering decisions. In particular, with stockout cost, the risk-averse newsvendor does not necessarily order less than the risk-neutral newsvendor. We illustrate this finding analytically for the case where the demand follows the power distribution.

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Year of publication:	2009
Authors:	Wu, Jun ; Li, Jian ; Wang, Shouyang ; Cheng, T.C.E.
Published in:	Omega. - Elsevier, ISSN 0305-0483. - Vol. 37.2009, 3, p. 724-730
Publisher:	Elsevier
Keywords:	Supply chain Newsvendor problem Mean-variance Stockout cost

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

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