Strategic Disposal or Strategic Inventory? Theory and Experiments

28 Pages Posted: 6 Mar 2023

See all articles by Yan Lang

Yan Lang

SUNY Oneonta

Jingjie Su

Cameron University

Kay-Yut Chen

University of Texas at Arlington

Date Written: March 1, 2023

Abstract

Game theoretic analysis of a supplier-retailer system in a two-period newsvendor setting reveals that, on the part of the retailer, committing to disposal of inventory, that is to discard unsold inventory, rather than carryover to the next period, is preferred, under certain conditions, because of strategic reasons. However, subsequent human subject experiments show that individuals choose inventory carryover more often in violation of game theoretic predictions. We identify past demand anchoring and overconfidence as the likely explanations amongst several alternatives and develop a behavioral model, based on the popular quantal response equilibrium framework, to explain the results.

Keywords: Strategic Disposal, Strategic Inventory, Anchoring, Overconfidence, Bounded Rationality, Economic Experiments

Suggested Citation

Lang, Yan and Su, Jingjie and Chen, Kay-Yut, Strategic Disposal or Strategic Inventory? Theory and Experiments (March 1, 2023). Available at SSRN: https://ssrn.com/abstract=4374962 or http://dx.doi.org/10.2139/ssrn.4374962

Yan Lang (Contact Author)

SUNY Oneonta ( email )

108 Ravine Pkwy
Oneonta, NY 13820
United States

Jingjie Su

Cameron University ( email )

Kay-Yut Chen

University of Texas at Arlington ( email )

Arlington, TX
United States

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