The Newsvendor Problem with Advertising Revenue

Publication Type

Journal Article

Publication Date

2011

Abstract

We study a modified newsvendor model in which the newsvendor obtains a revenue from sales to end users as well as from an advertiser paying to obtain access to those end users. We study the optimal decisions for both a price-taking and a price-setting newsvendor when the advertiser has private information about its willingness to pay for advertisements. We find that the newsvendor's optimal policy excludes advertisers with low willingness to pay and distorts the price and quantity from its system-efficient level to screen the advertiser. Our analysis reveals the different roles that pricing and production quantity play as screening instruments. We perform a numerical analysis to investigate the value of information and the impact of the model parameters.

Keywords

newsvendor model, pricing, advertising, mechanism design, value of information

Discipline

Advertising and Promotion Management

Research Areas

Marketing

Publication

Manufacturing and Service Operations Management

Volume

13

Issue

3

First Page

281

Last Page

296

ISSN

1523-4614

Identifier

10.1287/msom.1100.0318

Publisher

INFORMS

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