Optimal Policies of Newsvendor Model Under Inventory-Dependent Demand

Abstract

This paper aims to give the newsvendor’s unique optimal order quantity in two forms of models under inventory-dependent demand: the linear model and the non-linear model (e.g. exponential function), and study differences caused by different effects of the inventory level on the consumer demand. Finally, we provide optimal order policies and find the risk-averse newsvendor’s optimal order quantity always decreases in the risk aversion and is still lower than that of the risk-neutral newsvendor no matter how the inventory level affects the consumer demand. Moreover, effects of parameters on optimal order quantities have been proved through numerical studies.