Loss‐Averse Retailer’s Optimal Ordering Policies for Perishable Products with Customer Returns

Abstract

We investigate the loss‐averse retailer’s ordering policies for perishable product with customer returns. With the introduction of the segmental loss utility function, we depict the retailer’s loss aversion decision bias and establish the loss‐averse retailer’s ordering policy model. We derive that the loss‐averse retailer’s optimal order quantity with customer returns exists and is unique. By comparison, we obtain that both the risk‐neutral and the loss‐averse retailer’s optimal order quantities depend on the inventory holding cost and the marginal shortage cost. Through the sensitivity analysis, we also discuss the effect of loss‐averse coefficient and the ratio of return on the loss‐averse retailer’s optimal order quantity with customer returns.

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