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Technical Note—A Note on "The Censored Newsvendor and the Optimal Acquisition of Information"

Alain Bensoussan, Metin Çakanyldrm, Suresh P. Sethi

International Center for Decision and Risk Analysis, School of Management, University of Texas at Dallas, Richardson, Texas 75083
School of Management, University of Texas at Dallas, Richardson, Texas 75083
Center for Intelligent Supply Networks, School of Management, University of Texas at Dallas, Richardson, Texas 75083
alain.bensoussan{at}utdallas.edu
metin{at}utdallas.edu
sethi{at}utdallas.edu

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.

Subject classifications: inventory/production; unknown demand; censoring; optimal policies.
History: Received January 2007; revision received November 2007; accepted February 2008.