Explaining retailer's ordering behavior in supply chain experiments

Official URL: http://risc01.sabanciuniv.edu/record=b1589816 (Table of Contents)

In this thesis, we study the retailer’s ordering behavior in a manufacturer-retailer supply chain where the retailer faces the newsvendor problem. Analytical literature predicts that the retailer will use the critical ratio solution when determining her order quantity from the manufacturer. When real human beings play the roles of manufacturer and retailer in controlled experiments, however, the retailer decisions are observed to deviate from these theoretical predictions. The deviations are due to (1) individual biases and heuristics, (2) the strategic interaction between the two players. Literature has studied the effects of individual biases and heuristics using simple newsvendor experiments. However, very few researchers have conducted experiments where both sides are human. This extension is valuable because supply chain relations in practice depend on human-to-human interaction between managers. In this study, using data from the supply chain experiments of Şahin and Kaya (2011), we aim to answer the following questions: (1) Do retailer subjects follow the heuristics observed in simple newsvendor experiments? (2) What are the factors affecting retailer decisions? (3) Do retailer subjects learn to make better decisions over time? We find that retailer behavior is highly heterogeneous. While there is support for the use of decision heuristics at the aggregate level, we have mixed results at individual level. Likewise, the factors that affect retailer order quantity are found to be subject-dependent. The extent of learning is also found to differ from subject to subject.