The Loss-averse Newsvendor Problem with a Service Requirement

In this paper, we discuss the loss-averse newsvendor problem. Firstly, we develop a basic model in which the service-level constraint is not considered. And we get the optimal order quantity and the optimal expected utility under the basic model. Then, we add a service-level constraint into the basic model. And we also get the unique optimal order quantity and the optimal expected utility. Furthermore, we discuss the effects of the service-level constraint on the optimal order quantity and the optimal expected utility. We find that when the service requirement is low, the extended model is equal to the basic model. However, when the service level is high, the optimal order quantity is increasing in the service level and the optimal expected utility is decreasing in the service level. Finally, we analyze the effects of changing parameter values on the optimal order quantity under a service-level constraint.