Modeling Bounded Rationality in Capacity Allocation Games with the Quantal Response Equilibrium

@article{Chen2012ModelingBR,
  title={Modeling Bounded Rationality in Capacity Allocation Games with the Quantal Response Equilibrium},
  author={Yefen Chen and Xuanming Su and Xiaobo Zhao},
  journal={Management Science},
  year={2012},
  volume={58},
  pages={1952-1962}
}
We consider a supply chain with a single supplier and two retailers. The retailers choose their orders strategically, and if their orders exceed the supplier's capacity, quantities are allocated proportionally to the orders. We experimentally study the capacity allocation game using subjects motivated by financial incentives. We find that the Nash equilibrium, which assumes that players are perfectly rational, substantially exaggerates retailers' tendency to strategically order more than they… CONTINUE READING

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