As stated above, the conventional approach to analyze the newsvendor model is based on the expected profit maximization (EPM), which considers that a newsvendor selects an order quantity
to maximize his expected profit.
The order quantity
is the quantity of goods that company is ordering from its supplier.
The standard EOQ can be multiplied by a factor: (1/(1 - i/K)) (1/2) where "K" is the holding rate and "i" the inflation rate to yield an adjusted order quantity
. This approach may be compared to Mehra and Amini by using an example from Mehra et al..
In the RE equilibrium, all consumers buy immediately, and the risk-averse newsvendor's retail price and order quantity
are characterized by
The bigger deviation from previous order quantity
trend results with stronger Bullwhip effect.
After normalizing the order quantity
on the average level, the model needs additional period for stabilization of inventory level.