The impact of retailer regret in two-stage supply chains: Various structures and buyer power

Abstract

In a two-stage supply chain (SC) without a buy-back contract, retailers may encounter two types of regrets stemming from demand uncertainty, under-ordering regret and over-ordering regret. We examine the effect of retailer regret on decision making within a competitive environment characterized by many-to-many relationships considering retailers’ buyer power under different SC structures (i.e., various numbers of retailers and suppliers). Furthermore, we compare the impact of regret with and without retailers’ buyer power. We find that: (1) The two types of regret influence the retailers’ order decisions in different directions, and retailers with high-margin (low-margin) are more sensitive to over-ordering (under-ordering) regret, while both types of regret contribute to an elevation in the wholesale price. (2) The effect of regret on SC profits varies depending on the structure of the SC and it may shift from being beneficial to harmful as the number of retailers increases. (3) Regret exhibits a similar influence on equilibrium decisions irrespective of the presence of buyer power, while the effect of regret on SC profits does not vary under different structures when there is no buyer power. The competition among retailers and suppliers in a decentralized SC alters the impact of regret on equilibrium and profit, particularly when retailers possess buyer power. To avoid the adverse effect of retailer regret, we recommend SC retailers take the SC structure and buyer power into account to maximize SC performance. Such findings are crucial to the development of any decentralized SC without buy-back contracts.