An Agent-Based Approach to the Newsvendor Problem with Price-Dependent Demand

Abstract

This research presents an agent-based approach to finding near-optimal solutions to the newsvendor problem with price-dependent demand. The classical newsvendor problem is pursued where the decision of order quantity needs to be made in order to maximize expected profit. Here, the additional caveat of price-sensitive demand is included. This means that price ( P ) and order quantity ( Q ) are decision variables under the control of the newsvendor, with the intent of maximizing the expected value of the associated profit. The solution approach exploits an agent-based strategy, where an artificial agent traverses a grid-coordinate system of Price and Quantity values, where each unique Price and Quantity combination results in an expected profit. The agent-based approach consistently results in optimal solutions to a problem from the literature.