Newsvendor problem with pricing: properties, algorithms, and simulation

When a newsvendor faces stochastic price-sensitive demands, he/she has to make the pricing and inventory decisions before the demand is realized. In the literature, this problem is typically solved by reducing it to an optimization problem over a single variable. In contrast, we treat this problem as a nonlinear system of two variables and provide some solution properties (e.g. existence, uniqueness) of the system. We also develop an iterative algorithm and a simulation based algorithm for this problem.