Highlights First study to consider target-setting on regretful newsvendors’ order decisions. Target-setting can effectively counteract regret bias. Target-setting with the regret and loss aversion jointly decide order quantity. Target-setting help a wholesale price to achieve supply chain coordination.

    Abstract The equilibrium order quantity of the regretful newsvendors generally presents the pull-to-center effect, leading to lower profits. This study finds that a target-setting approach which serves as a pervasive mechanism adopted by the manager can effectively counteract this bias. Rich literature finds that the regret bias makes newsvendors worse in practice; however, there is a lack of efficient and costless approaches to solving this issue. This study combines the target-setting with the regret model by considering reference dependence and loss aversion to characterize newsvendors’ utility under target-setting. The two effects are proven to interact with each other and jointly decide whether it turns out to be overordering or underordering. Interestingly, a high profit-margin target or a strong loss aversion may result in an effect opposite to the pull-to-center effect. Excluding selling high-margin products with a stronger aversion to leftover regret, the manager can motivate regretful newsvendors to select the profit-maximizing order quantity through target-setting. We extend our study to the selling-to-newsvendor setting and further verify that newsvendors’ regret bias may benefit the supply chain and can be exploited by the supplier. Significantly, target-setting may even help achieve supply chain coordination under a simple wholesale price. This study provides instructions for managers to avoid firms’ profit loss and achieve the maximum channel profit.


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    Title :

    Managing regretful newsvendors and supply chain performance through target-setting


    Contributors:
    Cao, Erbao (author) / Tang, Jing (author)


    Publication date :

    2024-01-28




    Type of media :

    Article (Journal)


    Type of material :

    Electronic Resource


    Language :

    English




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