A Discussion on “Financing Newsvendor Inventory”

Abstract

Maqbool Dada’s capital-constrained newsvendor model implies that a newsvendor does not need to pay off the loan fully when his revenue is not sufficient. This requires the newsvendor to declare bankruptcy in that case, which we call the possible bankruptcy situation. Therefore, the situation of the Maqbool Dada’s model applied is very limited. We modify and improve the Maqbool Dada’s model by assuming that the newsvendor must fully pay off the loan in any instance so that it can be applied widely; We give two examples and show that even in the possible bankruptcy situation, the increase of the Maqbool Dada model’s expected profit for the newsvendor is very less and the bankruptcy risk increases more compared with the revised Maqbool Dada’s model; And in the condition of the social optimal order, the social efficiency of the revised model is better than the Maqbool Dada’s model.