Supply chain contracting with competing regretful retailers

• Published in: Managerial and decision economics Vol. 43; no. 6; pp. 2196 - 2211
• Main Authors: Kirshner, Samuel N., Li, Zhaolin
• Format: Journal Article
• Language: English
• Published: Chichester Wiley Periodicals Inc 01-09-2022
• Subjects: Coordination; Rationality; Regret; Supply; Supply & demand; Uncertainty
• ISSN: 0143-6570; 1099-1468
• DOI: 10.1002/mde.3518

We study a two‐tier supply chain with demand uncertainty where retailers experience regret from ex‐post inventory error. With a monopolist retailer, we find that individual rationality can lead to supply chain coordination and creates non‐trivial differences between regret and other reference points previously shown to be mathematically equivalent. Under competition, inventory regret can lead to either a separating or a pooling equilibrium despite the heterogeneity in their disutility from regret. The potential for a separating or pooling equilibria also differs substantially from the extant literature with implications for the wholesale price contracts and how competition dynamics impact industry service levels.