Joint order and pricing decisions for fresh produce with put option contracts

Chong Wang · Xu Chen

46 citations0/0 files storedJournal of the Operational Research Society

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Supply Chain and Inventory Management Consumer Market Behavior and Pricing Sustainable Supply Chain Management

Abstract

This paper investigates a newsvendor problem for fresh produce with put option contracts, in which the stochastic demand is price sensitive. The newsvendor can obtain products by ordering from a firm and return unsold products by purchasing and exercising put options. The fresh produce incurs a circulation loss in quantity during its transportation. The optimal joint order and pricing decisions for the newsvendor are analytically derived in the presence of put option contracts and circulation loss. Moreover, combined with numerical analysis, the optimal order quantity and selling price of the newsvendor are found to decrease with option price, but increase with exercise price and circulation loss, whereas the maximum expected profit is found to decrease with option price and circulation loss, but increase with exercise price. Furthermore, the newsvendor with put option contracts can deal with the risks that caused by demand uncertainty and high circulation loss of fresh produce.

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References

2003Supply Chain Coordination with Contracts 1999Pricing and the Newsvendor Problem: A Review with Extensions 2002Coordination and Flexibility in Supply Contracts with Options 2013Agri‐fresh produce supply chain management: a state‐of‐the‐art literature review 1959Uncertainty and Price Theory 2009Optimization and Coordination of Fresh Product Supply Chains with Freshness‐Keeping Effort 2015Operational research models applied to the fresh fruit supply chain 2005Competitive Options, Supply Contracting, and Electronic Markets

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