Price-setting newsvendor with strategic consumers

We consider a newsvendor who sells a single product over a single season with the objective of determining both the selling price and stock quantity to maximize the expected profit. The customers are strategic and we consider two demand cases: additive and multiplicative. For each case, we derive the newsvendor's optimal decisions and demonstrate that neglecting the price-sensitivity of demand leads the newsvendor to make sub-optimal decisions. Moreover, we show that under certain conditions, strategic consumer behavior may positively affect the newsvendor's optimal expected profit in the additive demand case. (C) 2015 Elsevier Ltd. All rights reserved.