Pricing, rebate, advertising and ordering policies of a retailer facing price-dependent stochastic demand in newsvendor framework under different risk preferences

This paper evaluates the pricing and ordering policies of risk‐neutral, risk‐averse and risk‐seeking newsvendor‐type retailers facing price‐dependent stochastic demand and several sales‐promotion policies, namely pricing, rebates and advertising. Optimal pricing and ordering policies are obtained for the iso‐elastic demand function and for additive and multiplicative demand‐error structures. Performance is measured by the risk‐adjusted expected profit and evaluated across risk preferences. Pricing, rebate and advertising, in that order, are the most profitable sales‐promotion policies. The more risk averse the retailer, the lower its profit and the more it favors multiple promotion policies.