Ration Gaming and the Bullwhip Effect

Abstract

We model a single-supplier, 73-store supply chain as a dynamic discrete choice problem. We estimate the model with transaction-level data, spanning 3,251 products and 1,370 days. We find two interrelated phenomena: the bullwhip effect and ration gaming. To establish the bullwhip effect, we show that shipments from suppliers are more variable than sales to customers. To establish ration gaming, we show that upstream scarcity triggers inventory runs, with stores simultaneously scrambling to amass private stocks in anticipation of impending shortages. These inventory runs increase our bullwhip measures by between 6% and 19%, which corroborates Lee et al.'s (1997) hypothesis that ration gaming causes the bullwhip effect.

Keywords: bullwhip effect; ration gaming; (s, S) inventory policies; dynamic discrete choice; empirical supply chain management; structural estimation.