Pricing and inventory management in the presence of strategic customers with risk preference and decreasing value

This paper addresses the single-period joint inventory and pricing decision problem considering strategic customers with risk preference and decreasing value. Comparing with the classical newsvendor model, strategic customer behavior leads to a lower ordering quantity, a lower price and a lower total profit, which are bad for firms. Furthermore, we study the impacts of the risk preference and the decreasing value of strategic customers on the ordering quantity, the sale price and the total profit. Finally, we examine the effect of the reimbursement contract on the alleviation of the strategic customer behavior and identify the conditions under which the contract can alleviate the strategic customer behavior.

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