Profit of a Supply Chain versus its Decentralization in the Presence of Strategic Customers

Abstract

A strategic customer is the customer who can intentionally delay purchases and wait for products on sale. In the selling season of seasonal products, there is usually a sale period because product valuation drops significantly. We study the behavior of strategic customers in a supply chain selling seasonal products. Contrary to strategic customers, myopic customers buy or leave, and do not wait. Previous researches with myopic customers suggest that decentralization decreases the supply chain’s profit. We simulate supply chain members’ interaction and learning processes of decisions to investigate how decentralization of a supply chain affects its profit in the presence of strategic customers. We study the effect of customer heterogeneity over product valuation and find that: (i) The profit of the decentralized supply chain is higher than that of the centralized one when the degree of customer heterogeneity is high, the expected product valuation is low, and customers have low time sensitivity. (ii) Decentralization retards delaying purchases of strategic customers. In addition, we find that the endogenization of the sale price can weaken the negative effect of strategic customers on the supply chain’s profit.