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Coulmas-Law (p.42-46)

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JOURNAL OF APPLIED BUSINESS AND ECONOMICS

The Newsvendor Problem with Pricing and Secondary Revenues

Author(s): John G. Wilson, Craig Sorochuk

Citation: John G. Wilson, Craig Sorochuk, (2013) "The Newsvendor Problem with Pricing and Secondary Revenues," Journal of Applied Business and Economics, Vol. 14, Iss. 4, pp. 11-23

Article Type: Research paper

Publisher: North American Business Press

Abstract:

Many industries (e.g. hotel, rental car, cruise line and airline companies) consider secondary revenues a

major source of profitability. In 2010, for instance, the five largest airlines in the United States received a

total of $2.7 billion in revenue from baggage fees alone. Some casinos give away rooms since secondary

activities are so profitable. Secondary revenues cannot occur without the purchase of a primary item. The

price of the primary item is crucial. We consider optimal inventory levels and prices for primary items.

We allow the secondary revenue to depend on the price of the primary item.