The newsvendor problem with retail competition

This paper considers the newsvendor problem with two competing retailers who face price-sensitive and uncertain demand. There are two questions: (1) how to model the price-dependent stochastic demand and retail competition and (2) how to derive the combined pricing and inventory solutions. In order to answer above problems, we adopt multiplicative demand function and model the expected demand as an exponential function of both retailers´ prices, then it is concluded that each retailer´s best response price is unique and independent of the competitor´s price decision, and each retailer´s best response stocking factor is uniquely determined when the demand distribution satisfying the IFR property.