The newsvendor problem with barter exchange

Guowei Hua, Yi Zhang, T. C.E. Cheng, Shouyang Wang, Juliang Zhang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

3 Citations (Scopus)

Abstract

Barter exchange, as an alternative to move distressed inventory, has become increasingly popular in business. Many companies barter their unsold product for the product they need via barter exchange platforms at full prices. In this paper we consider the newsvendor problem with the barter exchange option. A retailer (the newsvendor) facing stochastic demand not only sells its product, but also buys other product that it needs from the market. It either trades its unsold product for the product it needs on a barter platform or disposes of its unsold product at discounted prices at the end of the selling season like in the classical newsvendor model. We derive the retailer's optimal order quantity, then analytically and numerically examine the impacts of barter on the retailer's inventory decisions and profit. We find that barter exchange can help the retailer to manage demand uncertainty and improve profit. The optimal order quantity decreases with barter commission and barter uncertainty, while increases with demand uncertainty and the value of the product that the retailer needs. Barter is more advantageous with lower barter commission, larger demand uncertainty, lower barter uncertainty, and higher value of the product it needs.

Original languageEnglish
Article number102149
JournalOmega (United Kingdom)
Volume92
DOIs
Publication statusPublished - Apr 2020

Keywords

  • Barter exchange
  • Inventory management
  • Newsvendor problem
  • Order quantity
  • Stochastic demand

ASJC Scopus subject areas

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

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