Overconfident Competing Newsvendors

Li, Meng; Petruzzi, Nicholas C.; Zhang, Jun

doi:10.1287/mnsc.2016.2469

Cited by 143 publications

(121 citation statements)

References 33 publications

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“…, Li et al. ). Ren and Croson () find that overconfidence bias is robust across various controlled experiments, and it can reasonably explain the famous pull‐to‐center effect.…”

Section: Literature Review and Our Contributionsmentioning

confidence: 99%

Overconfident Distribution Channels

2019

Production and Operations Management

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W e study the effects associated with overconfidence in distribution channels, where overconfidence is defined as a decision maker's cognitive bias in perceiving the expected outcome of an uncertain event as more certain than it likely is. Although overconfidence bias always leads to a lower expected profit for a centralized channel, we find that overconfidence can in fact enhance the performance of a decentralized channel comprising one overconfident manufacturer and retailer. That is, overconfidence can reduce the double marginalization effect so that, compared to a decentralized channel managed by unbiased firms, the profit of an overconfident decentralized channel can be higher. In a similar vein, overconfidence bias can benefit, rather than hurt, either or both channel members. Our results shed some light on the design and adoption of strategies aimed at enhancing decisions and curtailing overconfidence bias of supply chain executives.

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“…, Li et al. ). Ren and Croson () find that overconfidence bias is robust across various controlled experiments, and it can reasonably explain the famous pull‐to‐center effect.…”

Section: Literature Review and Our Contributionsmentioning

confidence: 99%

Overconfident Distribution Channels

2019

Production and Operations Management

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“…Although repositioning costs play an important role in competitive interactions, entrants are often unable to precisely assess the incumbent's repositioning costs due to the prevalence of decision biases, systematic errors in how executives process information in strategic decision making (Horn, Lovallo, & Viguerie, 2005;Menon, 2018;Menon & Dennis, 2018;Schwenk, 1984). These decision biases prevent managers from completely avoiding errors in estimating a competitor's ability (Goldfarb & Yang, 2009;Li, Petruzzi, & Zhang, 2016;Li, 2019;Prescott & Visscher, 1977). For example, using controlled laboratory studies, Moore and Cain (2007) and Cain, Moore, and Haran (2015) find that entrants to a market tend to systematically overestimate or underestimate their rivals.…”

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confidence: 99%

Incumbent repositioning with decision biases

2019

Strategic Management Journal

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Research Summary Incumbent firms often reposition themselves in response to entrants, but when doing so they incur repositioning costs. Incumbent repositioning costs and the associated decision biases have been identified in the economics, operations, and strategy literatures as critical aspects of the competitive interactions between incumbents and entrants, but they have received limited attention in game‐theoretic treatments at the strategy level. To fill this gap, we develop a strategic mental model to analytically characterize the impacts of repositioning costs and decision biases on firms' equilibrium strategies and profits. Including these costs and biases changes, the nature of strategic dynamics as well as introduces new implications for strategic choice. Managerial Summary Our analysis shows that although biases by themselves are unequivocally harmful for firms, both the entrant and incumbent can earn more when they are biased than when neither one is. In particular, when an entrant is biased in estimating an incumbent's repositioning ability, this unequivocally reduces its own performance, if the incumbent is aware of the entrant's bias and has correctly assessed it. In a similar vein, when an incumbent is biased in its estimation of the entrant, this hurts the incumbent. However, both the entrant and the incumbent can earn more than they would in a setting where both firms are unbiased. Furthermore, the incumbent is not necessarily better off by being less biased—that is, aware of but with an inaccurate assessment of entrant bias.

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“…They analyzed the properties of the Nash equilibrium under different rules of reallocating the excess demand. Recently, the newsvendor game problem has been studied in various settings, see, Huang, Zhou, and Zhao (2011), Lee and Lu (2015), Li et al (2015). The above works consider only the one-period newsvendor game.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Since the 1980s, the stock‐out based inventory competition problem has attracted considerable research interest and a large body of literature has appeared (e.g., Li, Petruzzi, & Zhang, ; Lippman & Mccardle, ; Olsen & Parker, ; Parlar, ). A common assumption made in these studies is that the decision makers can replenish the inventory in each period and the product is imperishable.…”

Section: Introductionmentioning

confidence: 99%

Purchase and retrieval competition for seasonal produce

Zhang

et al. 2020

Naval Research Logistics

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We study the competition problem of purchase and multiretrieval of perishable seasonal produce, where wholesalers purchase and stock their products in the first period, and then retrieve and sell them in subsequent periods. We first consider the duopoly case and assume that the prices are exogenous and fluctuate. In each period, after the price realization, the wholesalers retrieve some stock from their warehouses to satisfy their demands. One wholesaler's unsatisfied customers can switch to another and be satisfied by its left retrieved products. Any unsold retrieved stock has no salvage value and any unsatisfied demand is lost. The unretrieved stock is carried to the next period at a perishable rate. The wholesalers compete for the substitute demand by determining their own purchase and retrieval quantities. We show the existence and uniqueness of a pure‐strategy Nash equilibrium, and that the Nash equilibrium strategy has the simple “sell‐down‐to” structure. We also consider the general N‐person game and show the existence of the Nash equilibrium, and characterize the structure of the equilibrium strategy for the symmetric case. In addition, we consider the case with endogenous prices, and show that the problem reduces to a repeated newsvendor game with price and inventory competition. We derive the conditions under which a unique Nash equilibrium exists and characterize the equilibrium strategy. Finally, we conduct numerical studies to examine the impacts of the model parameters on the equilibrium outcomes and to generate managerial insights.

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Overconfident Competing Newsvendors

Cited by 143 publications

References 33 publications

Overconfident Distribution Channels

Overconfident Distribution Channels

Incumbent repositioning with decision biases

Purchase and retrieval competition for seasonal produce

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