Risk-averse newsvendor model with strategic consumers

The newsvendor problem is a fundamental building block for inventory management with a stochastic demand. The classic newsvendor problem focuses on maximizing the expected profit or minimizing the expected cost when she faces myopic customers. However, it ignores the customer´s bargain-hunting behavior and risk preference measure of newsvendor. As a result, we carry out the rational expectation (RE) equilibrium analysis for risk-averse newsvendor facing forward-looking customers who anticipate future sales and choose purchasing timing to maximize their expected surplus. We propose the equilibrium price and quantity for the case where demand follows the uniform distribution and utility is power function. We identify the impact the system parameters on the RE equilibrium decisions for this specific situation.