Mixed contracts for the newsvendor problem with real options and discrete demand |
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Authors: | Kurt Jö rnsten,Sigrid Lise Nonå sLeif Sandal,Jan Ubø e |
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Affiliation: | Norwegian School of Economics and Business Administration, Helleveien 30, N-5045 Bergen, Norway |
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Abstract: | In this paper we consider the newsvendor model with real options under discrete demand. We consider a mixed contract where the retailer can order a combination of q units subject to the conditions in a classical newsvendor contract and Q real options on the same items. We provide a closed form solution to this mixed contract when the demand is discrete and study some of its properties. In particular we demonstrate that a mixed contract may be superior to a real option contract when a manufacturer has a bound on how much variance she is willing to accept. |
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Keywords: | Newsvendor model Real options Discrete demand Mixed contract |
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