the Newsvendor problem

Learning in Advance Selling with Heterogeneous Consumers

The advance selling strategy is implemented when a firm offers consumers the opportunity to order its product in advance of the regular selling season. Advance selling reduces uncertainty for both the firm and the buyer and enables the firm to update its forecast of future demand. The distinctive feature of the present study of advance selling is that we divide consumers into two groups, experienced and inexperienced. Experienced consumers know their valuations of the product in advance, while inexperienced consumers learn their valuations only in the regular selling season.

Pricing Strategies in Advance Selling: Should a Retailer Offer a Pre-order Price Guarantee?

I consider a retailer who sells a new product over two periods: advance and regular selling seasons. Experienced consumers learn their valuations for the product in the advance selling season, while inexperienced consumers learn only when the product becomes available in the regular selling season. The retailer is uncertain about the number of inexperienced consumers. Production takes place between the periods. Unsold units are scrapped at a price that is below the retailer's marginal cost, which makes it costly to produce and not sell.

Subscribe to the Newsvendor problem