The Ordering Optimization Model for Bounded Rational Retailer with Inventory Transshipment

Qingren He, Taiwei Shi, Botao Liu and Wanhua Qiu
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Taiwei Shi: School of Management, Guizhou University, Huaxi Road, Guiyang 550025, China
Botao Liu: School of Management, Guizhou University, Huaxi Road, Guiyang 550025, China
Wanhua Qiu: School of Economics and Management, Beihang University, Beijing 100191, China

Mathematics, 2022, vol. 10, issue 7, 1-16

Abstract: In order to study retailers’ ordering behavior deviating from the standard theoretical optimal decision, which is caused by retailers’ information asymmetry, cognitive ability, insufficient computing ability, and other factors, we construct a bounded-rationality choice model with quantal response equilibrium. First, the existence and uniqueness of quantal response equilibrium of transshipment game have been proved with the transshipment price satisfying certain conditions. Then, the numerical example demonstrates that with the increase of bounded-rationality parameters, retailers’ quantal response equilibrium will converge to Nash equilibrium due to the learning effect, and their profits will converge to the profits predicted by standard theory. Finally, the results show that retailers are more averse to the explicit loss of shortage than to the implicit loss of inventory surplus caused by the increase of order quantity. Hence, retailers tend to overorder to avoid loss of shortage.

Keywords: quantal response equilibrium; bounded rationality; transshipment; ordering (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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