Price-setting newsvendor with strategic consumers

• A newsvendor faces strategic consumers, additive or multiplicative demand.
• For each case, neglecting price-sensitivity would lead to suboptimal decisions.
• Strategic consumer behavior would positively affects the expected profit.

We consider a newsvendor who sells a single product over a single season with the objective of determining both the selling price and stock quantity to maximize the expected profit. The customers are strategic and we consider two demand cases: additive and multiplicative. For each case, we derive the newsvendor׳s optimal decisions and demonstrate that neglecting the price-sensitivity of demand leads the newsvendor to make sub-optimal decisions. Moreover, we show that under certain conditions, strategic consumer behavior may positively affect the newsvendor׳s optimal expected profit in the additive demand case.