Entrepreneurs and newsvendors : do small businesses follow the newsvendor logic when making inventory decisions?

C.J. Corbett, J.C. Fransoo

Research output: Book/ReportBookScientific

Abstract

This work empirically assesses the degree to which inventory decisions made by entrepreneurs and small businesses are informed by the logic underlying the newsvendor or base stock model and are influenced by the decision-maker’s risk profile. We used a web- and email-based survey, combined with a telephone follow-up to elicit risk profiles, obtaining 51 usable responses. Our findings suggest that entrepreneurs do follow the newsvendor logic, but more so for high-margin than for best-selling products. We find that entrepreneurs’ risk profiles are consistent with a key prediction from prospect theory, displaying risk aversion for profits and risk-seeking behavior for losses. Furthermore, we find that risk aversion for profits is associated with higher safety stocks, in contradiction to existing theory, and discuss several possible explanations for this finding.
Original languageEnglish
Place of PublicationEindhoven
PublisherTechnische Universiteit Eindhoven
ISBN (Print)978-90-386-1128-0
Publication statusPublished - 2007

Publication series

NameBETA publicatie : working papers

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