When demand exceeds supply, customers often hedge against shortages by placing multiple orders with multiple suppliers. The resulting demand bubbles creates instability leading to excess capacity, excess inventory, low capacity utilization, and financial and reputation losses for suppliers and customers. This research contributes to the understanding of phantom demand caused by shortages by developing a formal model of the relationship between a single supplier and multiple retailers. The research combines simulation and game theory to explore equilibrium strategies that arise as a result of a dynamic game. When retailers must commit to a single strategy in a static retailer game, our analyses suggest that a prisoner’s dilemma arises if appropriate incentives are not in place, allowing retailers to reach equilibrium with an aggressive ordering strategy (inflating their orders and later canceling them) even though a conservative ordering strategy (ordering just what they need) is mutually more profitable. The conservative strategy dominates the aggressive one when sufficient incentives are in place. In addition, we investigate a number of strategies (e.g. tit-for-tat, severe punishment, etc.) for retailers in an infinitely repeated game and we explore the static and dynamic games for the supplier-retailer interactions.

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Date created

• 2005 July 17-2005 July 21

Type

• Document

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• Processing documentation available at: https://wiki.albany.edu/display/SCA/Processing+Ingested+Digital+Files

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• Creative Commons BY-NC-ND Attribution-NonCommercial-NoDerivs 4.0 International

  
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cc5bb0ac12a5b68b26b1583548898dae

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3c582e6f5cf305ef0030c7471b499022

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Collection

System Dynamic Society Records

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Collecting area

• This collection is part of the University Archives