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Menu Costs and the Bullwhip Effect: Supply Chain Implications of Dynamic Pricing

Author

Listed:
  • Robert L. Bray

    (Operations Department, Northwestern University, Evanston, Illinois 60208)

  • Ioannis Stamatopoulos

    (Information, Risk, and Operations Management Department, The University of Texas at Austin, Austin, Texas 78705)

Abstract

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.

Suggested Citation

  • Robert L. Bray & Ioannis Stamatopoulos, 2022. "Menu Costs and the Bullwhip Effect: Supply Chain Implications of Dynamic Pricing," Operations Research, INFORMS, vol. 70(2), pages 748-765, March.
    • Handle: RePEc:inm:oropre:v:70:y:2022:i:2:p:748-765
    DOI: 10.1287/opre.2021.2175
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