Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/10608
Title: The component procurement problem for the loss-averse manufacturer with spot purchase
Authors: Shen, H
Pang, Z
Cheng, TCE 
Keywords: Loss aversion
Newsvendor
Prospect theory
Spot purchase
Issue Date: 2011
Publisher: Elsevier
Source: International journal of production economics, 2011, v. 132, no. 1, p. 146-153 How to cite?
Journal: International journal of production economics 
Abstract: This paper studies the purchasing behaviour of a loss-averse engineer-to-order manufacturer, who purchases a key component for his final product from a supplier under a single-wholesale-price contract with spot purchase opportunities, where both the product demand and the component spot price are uncertain. Through newsvendor type of models, we analyze several key issues, including the effects of the manufacturer's loss aversion, and the effects of demand and spot price uncertainties on the manufacturer's decision behaviour. We find that the purchasing behaviour of the loss-averse manufacturer differs from those of the risk-neutral and risk-averse ones. Specifically, we identify some sufficient conditions under which the loss-averse manufacturer may purchase a larger order quantity in advance when demand becomes more uncertain or when the price becomes more uncertain. We also discuss the two-wholesale-price contract and show that fixing the emergency supply price may lead to a smaller order quantity.
URI: http://hdl.handle.net/10397/10608
ISSN: 0925-5273
DOI: 10.1016/j.ijpe.2011.03.025
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