The Optimal Strategies of Risk-Averse Newsvendor Model for a Dyadic Supply Chain with Financing Service

Abstract

This paper studies the budget-constrained newsvendor problem under risk aversion with financing service and builds a two-stage supply chain decision model on the order quantity and wholesale price. The budget-constrained retailer as a newsvendor faces a nonnegative random demand and the financial institution provides the loan service for the retailer who is risk-averse. This paper first explores the impact of risk aversion on the decisions in financial supply chain. Different from the existing research, we analyze how the financing service of bank loan impacts the risk-averse newsvendor's decision and how the risk-averse behavior of the retailer influences the optimal strategies in supply chain with CVaR risk measure criterion. It is found that the order quantity decreases in the degree of risk aversion. The optimal order quantity is decreasing in initial budget, wholesale price, and interest rate. It is worth noting that the financing service can improve the profit of the supply chain system when the retailer has a low initial wealth. Finally, to compare with the existing results the theoretical analysis and numerical examples are also illustrated.