Bullwhip and Reverse Bullwhip Effects under the Rationing Game
Forthcoming in Naval Research Logistics
26 Pages Posted: 20 Aug 2008 Last revised: 25 May 2017
Date Written: May 25, 2017
When an unreliable supplier serves multiple retailers, the retailers may compete with each other by inflating their order quantities in order to obtain their desired allocation from the supplier, a behavior known as the rationing game. We introduce capacity information sharing and a capacity reservation mechanism in the rationing game and show that a Nash equilibrium always exists. Moreover, we provide conditions guaranteeing the existence of the reverse bullwhip effect upstream, a consequence of the disruption caused by the supplier. In contrast, we also provide conditions under which the bullwhip effect does not exist. In addition, we show that a smaller unit reservation payment leads to more bullwhip and reverse bullwhip effects, while a large unit underage cost results in a more severe bullwhip effect.
Keywords: rationing game, bullwhip effect, reverse bullwhip effect, supply uncertainty, order variance
Suggested Citation: Suggested Citation