This program uses an interactive web-based interface to run a
chain of vertically related markets (manufacturer, distributor,
wholesaler, and retailer). At present, the only available option is the
Newsvendor Problem: a retailer who purchases units at a fixed wholesale
price and then sells at a fixed retail price, with sales subject to
a random demand shock. Unsold units have no
value, like yesterday's newspaper.
Observed order quantities can be compared with theoretical predictions.
A typical observation is the average order quantities do not respond as
sharply to price/cost margins as would be predicted
(Schweitzer and Cachon, Management Science, 2000).
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In particular, there is a "pull-to-center effect": order quantities are
too low when the wholesale price is low and
the optimal order is high, and conversely, order quantities are too high when
the optimal order is relatively low. For references to related research,
see Holt(2006), Markets, Games, and Strategic Behavior, Chapter 7.
Vecon Lab - February 20, 2020