Enhancing supply chain decisions with consumers’ behavioral factors: An illustration of decoy effect

Internet shortens the distance between consumers and firms in a supply chain and facilitates firms to consider consumers’ behaviors when making business decisions. In this paper, we study the decoy effect on firms’ product proposition decisions under various circumstances. The decoy effect is the phenomenon whereby consumers change their preference between two options when presented with a third option that is less desirable. We examine the product propositions in a competitive supply chain adopting decoy effect from the perspectives of a high-end firm or a low-end firm, respectively. We also investigate impacts of consumers’ behavioral factors on the decoy effect, such as rationality, social influence, and loss-aversion preference. Further, we test whether decoys can be as effective online as they are offline, and effective in a monopolistic supply chain as well. A multi-agent system is built to conduct simulations.