A distribution‐free newsvendor model with balking and lost sales penalty

In this paper, we extend the classical single period newsvendor model in an environment of customer balking, which occurs when customers are reluctant to buy a product if its available inventory falls below a threshold level. Since failure to make a sale usually results in a cost penalty, in addition to the opportunity cost of lost sales, we incorporate such costs in our model. Furthermore, we extend our model to include fixed ordering costs. Our analysis is based on the assumption that only the mean and the variance of the distribution of demand are known, without assuming any specific distributional form. We illustrate the concepts developed here through simple numerical examples and demonstrate the effectiveness of our approach by solving a set of 1000 randomly generated test problems.