Pricing, rebate, advertising and ordering policies of a retailer facing price-dependent stochastic demand in newsvendor framework under different risk preferences

Abstract

This paper evaluates the pricing and ordering policies of risk-neutral, risk-averse and risk-seeking newsvendor-type retailers facing price-dependent stochastic demand and several sales-promotion policies, namely pricing, rebates and advertising. Optimal pricing and ordering policies are obtained for the iso-elastic demand function and for additive and multiplicative demand-error structures. Performance is measured by the risk-adjusted expected profit and evaluated across risk preferences. Pricing, rebate and advertising, in that order, are the most profitable sales-promotion policies. The more risk averse the retailer, the lower its profit and the more it favors multiple promotion policies.

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