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Conditions of reverse bullwhip effect in pricing for price-sensitive demand functions

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  • Ertunga Özelkan
  • Churlzu Lim

Abstract

Supply chain mechanisms that exacerbate price variation needs special attention, since price variation is one of the root causes of the bullwhip effect. In this study, we investigate conditions that create an amplification of price variation moving from the upstream suppliers to the downstream customers in a supply chain, which is referred as the “reverse bullwhip effect in pricing” (RBP). Considering initially a single-stage supply chain in which a retailer faces a random and price-sensitive demand, we derive conditions on a general demand function for which the retail price variation is higher than that of the wholesale price. The investigation is extended to a multi-stage supply chain in which the price at each stage is determined by a game theoretical framework. We illustrate the use of the conditions in identifying commonly used demand functions that induce RBP analytically and by means of several numerical examples. Copyright Springer Science+Business Media, LLC 2008

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  • Ertunga Özelkan & Churlzu Lim, 2008. "Conditions of reverse bullwhip effect in pricing for price-sensitive demand functions," Annals of Operations Research, Springer, vol. 164(1), pages 211-227, November.
    • Handle: RePEc:spr:annopr:v:164:y:2008:i:1:p:211-227:10.1007/s10479-008-0444-9
    DOI: 10.1007/s10479-008-0444-9
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    Cited by:

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    6. Özelkan, Ertunga C. & Lim, Churlzu & Adnan, Ziaul Haq, 2018. "Conditions of reverse bullwhip effect in pricing under joint decision of replenishment and pricing," International Journal of Production Economics, Elsevier, vol. 200(C), pages 207-223.

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