Mean-variance analysis of the newsvendor model with stockout cost

Jun Wu, Jian Li, Shouyang Wang, Edwin Tai Chiu Cheng

Research output: Journal article publicationJournal articleAcademic researchpeer-review

124 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)724-730
Number of pages7
JournalOmega
Volume37
Issue number3
DOIs
Publication statusPublished - 1 Jun 2009

Keywords

  • Mean-variance
  • Newsvendor problem
  • Stockout cost
  • Supply chain

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Information Systems and Management

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