Abstract for: Exploring Retailer’s Ordering Decisions under Delays
When final customer demand exceeds available supply, retailers often hedge against shortages by inflating orders to their suppliers. While the amplification in orders caused by competition for scarce resources has been described in the literature almost a century ago, there is little experimental research examining the factors influencing retailer’s order amplification. This paper analyzes retailer order decisions in response to a surge in demand. In an experimental environment based on a formal mathematical model we test subject’s ordering decisions under different ordering and supplier capacity acquisition delays and compared them to an optimal benchmark. Our results from different treatments allow us to characterize subjects’ performance in this system and formulate a heuristic that closely replicates subjects’ ordering behavior in all treatments.