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Overconfident Distribution Channels

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  • Meng Li

Abstract

We 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.

Suggested Citation

  • Meng Li, 2019. "Overconfident Distribution Channels," Production and Operations Management, Production and Operations Management Society, vol. 28(6), pages 1347-1365, June.
    • Handle: RePEc:bla:popmgt:v:28:y:2019:i:6:p:1347-1365
    DOI: 10.1111/poms.12981
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    Cited by:

    1. Ma, Shanshan & Li, Guo & Sethi, Suresh P. & Zhao, Xuan, 2022. "Advance booking discount strategies: Competition, information transparency and spot market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).
    2. Xianjin Du & Meng Li & Brian Wu, 2019. "Incumbent repositioning with decision biases," Strategic Management Journal, Wiley Blackwell, vol. 40(12), pages 1984-2010, December.
    3. Zhisong Chen & Chaonan Tang & Jianhui Peng, 2023. "Nominal effect vs actual effect: overconfidence in a consignment omnichannel," Electronic Commerce Research, Springer, vol. 23(2), pages 843-876, June.
    4. Feiyu Guo & Erbao Cao, 2020. "Does Reference Dependence Impact Intervention Mechanisms in Vaccine Markets?," Sustainability, MDPI, vol. 12(16), pages 1-28, August.
    5. Hao Xu & Kaiye Gao & Yuanying Chi & Yahui Chen & Rui Peng, 2022. "Interactive Impacts of Overconfidence and Competitive Preference on Closed-Loop Supply Chain Performance," Mathematics, MDPI, vol. 10(22), pages 1-23, November.
    6. Tian Bai & Samuel N. Kirshner & Meng Wu, 2021. "Managing Overconfident Newsvendors: A Target‐Setting Approach," Production and Operations Management, Production and Operations Management Society, vol. 30(11), pages 3967-3986, November.
    7. Ping Yan & Jun Pei & Altannar Chinchuluun, 2020. "Strategic decisions of sales and pay-per-use rentals under incomplete product availability," Journal of Global Optimization, Springer, vol. 78(4), pages 671-691, December.
    8. Li, Zhiwen & Xu, Xianhao & Bai, Qingguo & Chen, Cheng & Wang, Hongwei & Xia, Peng, 2023. "Implications of information sharing on blockchain adoption in reducing carbon emissions: A mean–variance analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 178(C).
    9. Pu, Xujin & Zhang, Shiming & Ji, Bowen & Han, Guanghua, 2021. "Online channel strategies under different offline channel power structures," Journal of Retailing and Consumer Services, Elsevier, vol. 60(C).
    10. Jialu Li & Meng Li & Xuan Zhao, 2021. "Transshipment Between Overconfident Newsvendors," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 2803-2813, September.
    11. Meng Li & Tao Li, 2022. "AI Automation and Retailer Regret in Supply Chains," Production and Operations Management, Production and Operations Management Society, vol. 31(1), pages 83-97, January.
    12. Zhang, Mengyao & Gou, Qinglong & Yu, Lili & Zhang, Juzhi, 2022. "Pricing decisions for a social comparison product supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 168(C).
    13. Tony Haitao Cui & Guangwen Kong & Behrooz Pourghannad, 2020. "Is Simplicity the Ultimate Sophistication? The Superiority of Linear Pricing," Production and Operations Management, Production and Operations Management Society, vol. 29(7), pages 1767-1788, July.
    14. Du, Xianjin & Zhan, Huimin & Zhu, Xiaoxuan & He, Xiuli, 2021. "The upstream innovation with an overconfident manufacturer in a supply chain," Omega, Elsevier, vol. 105(C).
    15. Liu, Jie & Yang, Yang & Yu, Yugang, 2021. "Ordering and interest rate strategies in platform finance with an overconfident and commerce retailer," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 153(C).
    16. Hao, Zhongyuan & Li, Juan & Cai, Jinling, 2023. "Allocation of inventory responsibilities in overconfident supply chains," European Journal of Operational Research, Elsevier, vol. 305(1), pages 207-221.
    17. Dong, Binwei & Ren, Yufei & McIntosh, Christopher, 2023. "A co-opetitive newsvendor model with product substitution and a wholesale price contract," European Journal of Operational Research, Elsevier, vol. 311(2), pages 502-514.
    18. Kopel, Michael & Ramani, Vinay, 2024. "The bright side of the planning fallacy in distribution channels," European Journal of Operational Research, Elsevier, vol. 314(2), pages 540-551.
    19. Chen, Xin & Xu, Weijun & Wu, Meng, 2024. "Newsvendor overconfidence and advertising," Omega, Elsevier, vol. 126(C).
    20. Ahmed Timoumi & Narendra Singh & Subodha Kumar, 2021. "Is Your Retailer a Friend or Foe: When Should the Manufacturer Allow Its Retailer to Refurbish?," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 2814-2839, September.

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