Analysis of Conditional Value-at-Risk for Newsvendor with Holding and Backorder Cost under Market Search

We consider a distribution system with one supplier and two retailers. For the two retailers, they face different demand and are both risk averse. We study a single period model which the sup-plier has ample goods and the retailers order goods separately. Mar-ket search is measured as the fraction of customers who unsatisfied with their "local" retailer due to stock-out, and search for the goods at the other retailer before leaving the system. We investigate how the retailers game for order quantity in a Conditional Value-at-Risk framework and study how risk averse degree, market search level, holding cost and backorder cost influence the optimal order strate-gies. Furthermore, we use uniform distribution to illustrate these results and obtain Nash equilibrium of order strategies.