Conditions of reverse bullwhip effect in pricing for price-sensitive demand functions |
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Authors: | Ertunga C Özelkan Churlzu Lim |
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Institution: | (1) Systems Engineering and Engineering Management Program, The William States Lee College of Engineering, The University of North Carolina at Charlotte, 9201 University City Boulevard, Charlotte, NC 28223-0001, USA |
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Abstract: | Supply chain mechanisms that exacerbate price variation needs special attention, since price variation is one of the root
causes of the bullwhip effect. In this study, we investigate conditions that create an amplification of price variation moving
from the upstream suppliers to the downstream customers in a supply chain, which is referred as the “reverse bullwhip effect
in pricing” (RBP). Considering initially a single-stage supply chain in which a retailer faces a random and price-sensitive
demand, we derive conditions on a general demand function for which the retail price variation is higher than that of the
wholesale price. The investigation is extended to a multi-stage supply chain in which the price at each stage is determined
by a game theoretical framework. We illustrate the use of the conditions in identifying commonly used demand functions that
induce RBP analytically and by means of several numerical examples. |
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Keywords: | Pricing Bullwhip effect Supply chain management Game theory |
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