Optimization on pricing and overconfidence problem in a duopolistic supply chain

Lei Xu, Xiaoran Shi, Peng Du*, Kannan Govindan, Zhenchao Zhang

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

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Abstract

We analyze the impact of the retailer's overconfidence on the supply chain performance. We consider a duopolistic market with uncertain demand where one overconfident retailer and one rational retailer compete in selling the same product. We identify two cases in terms of the rational retailer's overconfidence awareness: (1) the rational retailer is aware of the other retailer's overconfidence; (2) the rational retailer is not aware of the other retailer's overconfidence. We first analyze the two retailers’ decision processes in a Nash game and derive their optimal decisions, and further discuss a Stackelberg-like game for an extension. We conduct a numerical analysis to examine the impact of overconfidence on the optimal pricing, ordering decisions and expected profits. We find that the higher the overconfident level is, the higher selling price that the overconfident retailer charges. Together, the results stress that the overconfidence does not necessarily damage the supply chain performance.

Original languageEnglish
JournalComputers and Operations Research
Volume101
Pages (from-to)162-172
ISSN0305-0548
DOIs
Publication statusPublished - Jan 2019

Keywords

  • Duopolistic market
  • Overconfidence
  • Overconfidence awareness
  • Supply chain management

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