Role of Risk Aversion in Price Postponement Under Supply Random Yield

Price postponement is an effective mechanism to hedge against the adverse effect of supply random yield. However, its effectiveness and resulting production decisions have not been studied for risk-averse firms. In this paper, we investigate impact price risk aversion under yield risk. Specifically, study a monopoly firm’s pricing with two distinct schemes: (1) ex ante in which firm simultaneously makes sales sourcing before takes place (2) responsive decision postponed until after realization. We adopt conditional value at (CVaR) as risk-aversion measurement level on optimal corresponding profit. Among other results, show that, each scheme, there exists unique threshold chooses produce. Interestingly, has no cutoff values both schemes are same. further that CVaR improvement from may be monotonic level. Consequently, our results indicate although induces operational flexibility by better matching demand available supply, whether should needs carefully evaluated benefit justify potential fixed cost associated postponement, especially highly firm. addition, pricing, even post revenue-maximization behavior, benefits end-market consumers equilibrium. Finally, conduct extensive numerical studies check confirm robustness results. This paper was accepted Charles Corbett, operations management.