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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

Ying Rong

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Lawrence V. Snyder

Lehigh University - Department of Industrial and Systems Engineering

Zuo-Jun Max Shen

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR)

Date Written: May 25, 2017

Abstract

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

Rong, Ying and Snyder, Lawrence V. and Shen, Zuo-Jun Max, Bullwhip and Reverse Bullwhip Effects under the Rationing Game (May 25, 2017). Forthcoming in Naval Research Logistics. Available at SSRN: https://ssrn.com/abstract=1240173 or http://dx.doi.org/10.2139/ssrn.1240173

Ying Rong (Contact Author)

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Lawrence V. Snyder

Lehigh University - Department of Industrial and Systems Engineering ( email )

Harold S. Mohler Laboratory
200 West Packer Avenue
Bethlehem, PA 18015-1582
United States

Zuo-Jun Max Shen

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR) ( email )

IEOR Department
4135 Etcheverry Hall
Berkeley, CA 94720
United States

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