Journal
OPERATIONS RESEARCH
Volume 70, Issue 2, Pages 748-765Publisher
INFORMS
DOI: 10.1287/opre.2021.2175
Keywords
dynamic pricing; menu costs; supply chain; bullwhip effect; empirical operations management; structural estimation
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The study found that reducing menu costs can reduce supply chain volatility, mainly due to stabilizing changes caused by an increase in the mean sales rate.
We study the supply chain implications of dynamic pricing. Specifically, we estimate how reducing menu costs-the operational burden of adjusting prices-would affect supply chain volatility. Fitting a structural econometric model to data from a large Chinese supermarket chain, we estimate that removing menu costs would (i) reduce the mean shipment coefficient of variation by 7.2 percentage points (pp), (ii) reduce the mean sales coefficient of variation by 4.3 pp, and (iii) reduce the mean bullwhip effect by 2.9 pp. These stabilizing changes are almost entirely attributable to an increase in the mean sales rate.
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