Revisiting measurement of compound bullwhip with asymmetric reference price

Abstract

In this paper, the bullwhip effect is analytically measured for a two-stage supply chain, including a manufacturer, and a retailer who serves a market demand. The demand is assumed to be a combination of a first-order autoregressive process, a retail price (set by the retailer), and an asymmetric customer reference price (representing the customer valuation). Furthermore, a series of existence conditions of the bullwhip effect with positively, negatively, and no correlated demands is identified by examining the compound effect of the autocorrelation, retail and reference prices, as well as the demand-price interactions. In addition, it is also found that the bullwhip effect in the case of demand with retail and reference prices is either stronger or weaker than that of demand without these prices in several scenarios. The finding indicates that an under- or over-estimating issue may arise if the retail and reference prices are not properly considered. Moreover, the behaviors of the bullwhip effect with respect to different model parameters are both analytically and numerically explored. The results offer some valuable insights, which lead to useful managerial implications.