The newsvendor problem with pricing: Extensions

The newsvendor problem with pricing decision provides an important vehicle for examining how operational problems interacts with marketing issues to influence decision-making at the firm level. This paper considers the newsvendor problem with pricing and its extensions. We try to answer two questions: (1) how to model the price-dependent stochastic demand and (2) how to derive the combined pricing and inventory solutions. We identify a class of demand functions which can result in well behaved profit functions. A demand function can be divided into two parts: the mean demand and random demand. If the part of mean demand has increasing price elasticity (IPE) and the part of random demand has generalized strict increasing failure rate (GSIFR), then the expected profit of the newsvendor is unimodal or quasi-concave. This appears generalizing the existent models in the literature.