Reference : Inventory Decisions in the Presence of Strategic Customers: Theory and Behavioral Evidence
Scientific journals : Article
Business & economic sciences : Production, distribution & supply chain management
Inventory Decisions in the Presence of Strategic Customers: Theory and Behavioral Evidence
Zhang, Yang mailto [> >]
Mantin, Benny mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Wu, Yaozhong mailto [> >]
Production and Operations Management
Production Operations Management Society
[en] newsvendor problem ; strategic customers ; behavioral theory
[en] We consider the inventory decision of a retailer facing strategic customers. We develop a behavioral theory that accounts for reference dependence, which makes predictions on how the presence of strategic customers leverages retailer behavior. Specifically, the reference-dependent retailer shall decrease her order quantity when there are more strategic customers in the population. As such, the conventional pull-to-center bias for newsvendor is generalized, since the presence of strategic consumers may induce the retailer to pull her order further below the center even when the production cost is low. Furthermore, increasing proportion of strategic customers reduces the retailer's ordering bias under low cost, yet amplifies it when the cost is high. Our subsequent experiments find pull-below-center effect, validate the theoretical predictions, and establish the asymmetry of reference dependence with the estimated behavioral parameters. We also study extensions to our model and carry out robustness checks of our experimental results.

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