Modelling decision behaviours in pricing game of closed-loop supply chains

Abstract

This paper experimentally and analytically studies pricing decisions in closed-loop supply chains. Experimental results show considerable deviations from theoretical predictions by traditional pricing models. Moreover, social relationships can affect decision results, and double marginalization is reduced in closed-loop supply chains. For in-depth analysis of experimental results, we further extended the quantal response equilibrium model by incorporating the fairness concerns of both the manufacturer and retailer. The analysis results of the developed model suggest that participants exhibit bounded rationality and fairness concerns when they make decisions. Social relationships can also influence the degree of fairness concerns.

Keywords:

• pricing decisions
• closed-loop supply chains
• behavioural operations management

Acknowledgements

The work was partly supported by the National Natural Science Foundation of China under grants 71101032 and 71371086, The Ministry of Education of China under Specialized Doctoral grants 20104420120008 and Ministry of Education of China under the New Century Excellent Talents grants NCET-11-0151.