Affiliations: School of Management, University of Texas at Dallas, Richardson, TX, USA
Note: [] Corresponding author: Metin Çakanyıldırım, School of Management, P.O. Box 830688, SM 30, University of Texas at Dallas, Richardson, TX 75083-0688, USA. E-mails: {alain.bensoussan, metin, andrew.royal, sethi}@utdallas.edu.
Abstract: The newsvendor problem is relatively easy to solve when the distribution of demand for newspapers is known. When the demand is unknown, the newsvendor faces a dual problem in the sense of Feldbaum (Automation and Remote Control 21 (1960), 874): to choose a decision variable that maximizes profit in the present period, and choose a large enough “observation window” to be able to view the process correctly so that consistent parameter estimation can occur. This is a difficult problem in general. In this paper, we treat a special case when the newsvendor faces exponential demand, independently and identically distributed with unknown mean.
