Conditions of reverse bullwhip effect in pricing under joint decision of replenishment and pricing

Abstract

A “reverse bullwhip effect in pricing (RBP)” occurs when an amplification of price variability takes place moving from the upstream suppliers to the downstream customers in a supply chain. In this study, we investigate RBP conditions for supply chains where joint replenishment and pricing decisions are made. Commencing with a single-stage supply chain in which a retailer faces a random and price-sensitive demand, we extend the results to a multi-stage supply chain using a leader-follower game theoretical framework. We discuss RBP conditions for supply chains where newsvendor and continuous review inventory policies are employed, and present numerical examples for commonly used demand functions.