A Note on 'The Censored Newsvendor and the Optimal Acquisition of Information'
Operations Research, Vol. 57, No. 3, pp. 791-794, May-June 2009
5 Pages Posted: 17 Jan 2008 Last revised: 18 Jul 2009
Abstract
This paper revisits the finite-horizon model of a censored newsvendor by Ding et al. [Ding, X., M. L. Puterman, A. Bisi. 2002. The censored newsvendor and the optimal acquisition of information. Oper. Res. 50 517–527]. An important result claimed there without a proper proof is that the myopic order quantity is always less than or equal to the optimal order quantity. Lu et al. [Lu, X., J. S. Song, K. Zhu. 2008. Analysis of perishable inventory systems with censored demand data. Oper. Res. 56(4) 1034–1038.] supplied a correct proof of the result. We analyze the same model using the interesting concept of the unnormalized probability, which simplifies the dynamic programming equation considerably and facilitates the proof of the claim. Moreover, it produces the proof of the existence of an optimal solution for an infinite-horizon setting of the problem.
Keywords: Inventory/production: unknown demand, lost sales, censoring, optimal policies, partial observations, incomplete demand information, Bayesian approach, myopic policy, unnormalized probability, dynamic programming, infinite dimensional state space, optimal control
JEL Classification: M11, C61
Suggested Citation: Suggested Citation
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