Revenue Management vs. Newsvendor Decisions: Does Behavioral Response Mirror Normative Equivalence?

Kocabiyikoglu, Ayse, Gogus, Celile Itir and Gönül, Sinan (2015) Revenue Management vs. Newsvendor Decisions: Does Behavioral Response Mirror Normative Equivalence? Production and Operations Management, 24 (5). pp. 750-761. ISSN 1059-1478

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Official URL: https://doi.org/10.1111/poms.12297

Abstract

We study and compare decision-making behavior under the newsvendor and the two-class revenue management models, in an experimental setting. We observe that, under both problems, decision makers deviate significantly from normative benchmarks. Furthermore, revenue management decisions are consistently higher compared to the newsvendor order quantities. In the face of increasing demand variability, revenue managers increase allocations; this behavior is consistent with normative patterns when the ratio of the selling prices of the two customer segments is less than 1/2, but is its exact opposite when this ratio is greater than 1/2. Newsvendors' behavior with respect to changing demand variability, on the other hand, is consistent with normative trends. We also observe that losses due to leftovers weigh more in newsvendor decisions compared to the revenue management model; we argue that overage cost is more salient in the newsvendor problem because it is perceived as a direct loss, and propose this as the driver of the differences in behavior observed under the two problems.

Item Type: Article
Uncontrolled Keywords: behavioral operations management, revenue management, newsvendor problem
Subjects: N100 Business studies
N200 Management studies
Department: Faculties > Business and Law > Newcastle Business School > Business and Management
Depositing User: Ay Okpokam
Date Deposited: 15 Jan 2018 14:50
Last Modified: 15 Jan 2018 14:50
URI: http://nrl.northumbria.ac.uk/id/eprint/33114

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