Advance selling under uncertain supply and demand: a robust newsvendor perspective

Considering the restriction of supply risk on optimal profit realization in advance selling, we discuss three selling strategies of a seller who produces and sells a seasonal product to a consumer under uncertain supply and demand: all advance selling, partial advance selling, and non-advance selling. The robust newsvendor model is designed to solve the problem. Our results show that implementing an advance selling strategy is always beneficial from the demand uncertainty perspective to the seller. However, sellers should choose advance selling carefully from the standpoint of supply uncertainty: sellers will non-advance selling under certain conditions. This condition is contingent on the market, capacity level, selling price, supply-demand correlation, consumer characteristics, and seller's pricing power. Interestingly, pricing power is the key driver to stimulate advance selling under supply uncertainty. In addition, the impact of supply and demand uncertainty and supply-demand correlation on these strategies are related to price discounts.