Abstract This paper studies the loss-averse newsboy problem based on competition between substitutable products. We first analyze the game between two competitive retailers, each of which is loss-averse. Then we obtain the equilibrium inventory level of them. Finally we develop the effect of loss-averse preference and product substitutability on the loss-averse retailer's inventory level. The result shows that the inventory level of both the single retailer and the whole industry increase with the retailer's loss-averse effect when the underage loss is less than the overage loss.; otherwise, the inventory level of both the single retailer and the whole industry decrease with the retailer's loss-averse preference. The numerical study shows that the effect of product substitutability on the retailer's inventory level is different when the demand distribution is different, the retailer should consider the demand distribution when deciding its product position.
2013, Vol. 10 
