Sharing Newsboys

53 Pages Posted: 1 Apr 2020 Last revised: 2 Apr 2021

See all articles by Setareh Farajollahzadeh

Setareh Farajollahzadeh

Rotman School of Management

Ming Hu

University of Toronto - Rotman School of Management

Date Written: March 5, 2020

Abstract

We consider a network of socially connected newsvendors facing random demand for a product, who need to commit to a stocking level before demand realizes. A newsvendor can share her ex-post excess stock to fulfill the unsatisfied demand of a connected newsvendor. The amount of shared supply that a newsvendor anticipates receiving from her network is affected by two factors: sharing magnitude and tie strength. Sharing magnitude measures the portion of excess stock, and tie strength measures the likelihood that a newsvendor will share her excess supply with a neighboring newsvendor. We adopt a Bayesian game framework with incomplete information about the network structure, where a newsvendor has private information about the number of connections she has (her type), but does not know her neighbors' types, which she believes are consistent with a network's known degree distribution. First, we demonstrate that with more sharing activity (i.e., greater sharing magnitude or stronger social ties) within a fixed network, all newsvendors decrease their stocking levels regardless of their types, which implies that the total consumption level drops. Second, we show that the sharing magnitude has a first-order effect on the mean of the shared supply, while the social tie has a second-order effect on the variability of the shared supply. As the degree distribution of the network increases in the sense of first order stochastic dominance, we show that the two effects may have opposite effects on the equilibrium stocking levels. The effect of sharing magnitude is to increase the equilibrium stocking levels. But the effect of tie strength is such that for a high-fractile product, the population's expected consumption level increases, while it is the other way around for a low-fractile product. Last, we extend the supply-sharing base model to complete network information for specific networks and to demand sharing, where unsatisfied demand at one newsvendor can be referred to a neighbor in her network.

Keywords: newsvendor, network game

JEL Classification: A14, C72, D85

Suggested Citation

Farajollahzadeh, Setareh and Hu, Ming, Sharing Newsboys (March 5, 2020). Available at SSRN: https://ssrn.com/abstract=3549011 or http://dx.doi.org/10.2139/ssrn.3549011

Setareh Farajollahzadeh (Contact Author)

Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Ming Hu

University of Toronto - Rotman School of Management ( email )

105 St. George st
Toronto, ON M5S 3E6
Canada
416-946-5207 (Phone)

HOME PAGE: http://ming.hu

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