Dimitriou, Stavrianna (2010) The impact of prices on boundedly rational decision makers in supply chains. PhD thesis, University of Warwick.

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Abstract

This PhD thesis was motivated by the simple observation that the
objectives of distinct supply chain managers are often conflicting. This
problem is usually addressed via supply chain contracts that are designed
to align the incentives of the different supply chain partners to the overall
benefit of the entire supply chain, when seen as a whole. In this way, the
long-term prosperity and viability of all the firms that participate in the
supply chain can be ensured. In order to study the efficiency of different
supply chain contracts in attaining the theoretical optimum performance,
there exist a number of standard normative models that predict the
decisions of perfectly rational decision makers. But supply chain partners
might in reality not make the perfectly rational decisions that these
theoretical models predict. This may be because they may lack the required
information, or experience cognitive limitations and individual preferences
or have only a finite amount of time available. For this reason, they might
have to settle at satisficing choices. The result of these ‘boundedly rational’
decisions is a real world of different than expected interactions.
Since in this world the standard normative models retain limited predictive
power, this PhD thesis aims to explore the true efficiency of the simplest
supply chain contract that can exist, namely, the wholesale price contract.
In addition, this PhD thesis provides some useful recommendations that
aim to help supply chain managers make price and order quantity decisions
that would be better aligned with the interests of the overall supply chain.
To this end, this study applies an original approach that supplements
experiments with human subjects with Agent Based Simulation
experiments. In greater detail, informal pilot sessions with volunteers were
first conducted, during which knowledge of the underlying decision
making processes was elicited. Appropriate Agent Based Simulation
models were subsequently built based on this understanding. Later on
human subjects were asked to interact with specially designed versions of
these Agent Based Simulation models in the laboratory, so that their
consecutive decisions over time could be recorded. Statistical models were
then fitted to these data sets of decisions. The last stage of this approach
was to simulate in the corresponding Agent Based Simulation models all
possible combinations of decision models, so that statically accurate
conclusions could be inferred. This approach has been replicated for both
the simple newsvendor setting and the beer distribution game.
The results that are obtained indicate that the overall efficiency of the
wholesale price contract differs significantly from the theoretical
prediction of the corresponding standard normative models. It varies
greatly and depends largely on the interplay between the pricing and
ordering strategies that the interacting supply chain partners adopt. In view
of this, real world echelon managers are advised to use prices as an
effective mechanism to control demand and, also, keep their total supply
chain profits in mind when making their respective decisions.

Item Type:	Thesis or Dissertation (PhD)
Subjects:	H Social Sciences > HF Commerce
Library of Congress Subject Headings (LCSH):	Business logistics -- Simulation methods, Prices -- Simulation methods, Multiagent systems
Official Date:	June 2010
Dates:	Date Event June 2010 Submitted
Institution:	University of Warwick
Theses Department:	Warwick Business School
Thesis Type:	PhD
Publication Status:	Unpublished
Supervisor(s)/Advisor:	Robinson, Stewart, 1964- ; Kotiadis, Kathy
Sponsors:	University of Warwick ; Warwick Business School ; Engineering and Physical Sciences Research Council (EPSRC) ; Operations Research Society (England)
Extent:	521 leaves : ill.
Language:	eng
URI:	http://wrap.warwick.ac.uk/id/eprint/35221

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