How to Compete Against a Behavioral Newsvendor

We investigate newsvendor ordering behavior under competition. We present a laboratory experiment that documents the behavioral ordering regularities in competitive newsvendor environments, and an analytical model extending the standard theory of newsvendor competition by including an optimal best response policy for competing with a behaviorally-biased newsvendor. We test the effectiveness of this policy using an out-of-sample experiment and find that it results in improved market share, service level and profitability.

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