Stackelberg equilibria in continuous newsvendor models with uncertain demand and delayed information
Journal article, Peer reviewed
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Original versionJournal of Applied Probability 2014, 51A:213-226 10.1239/jap/1417528477
We consider explicit formulae for equilibrium prices in a continuous-time vertical contracting model. A manufacturer sells goods to a retailer, and the objective of both parties is to maximize expected profits. Demand is an Itô–Lévy process, and to increase realism, information is delayed. We provide complete existence and uniqueness proofs for a series of special cases, including geometric Brownian motion and the Ornstein– Uhlenbeck process, both with time-variable coefficients. Moreover, explicit solution formulae are given, so these results are operational. An interesting finding is that information that is more precise may be a considerable disadvantage for the retailer. time-variable coeficients. Moreover, these results are operational because we are able to offer explicit solution formulas. An interesting finding is that information that is more precise may be a considerable disadvantage for the retailer.
By permission. Copyright (c) Applied Probability Trust (2014).