Research On Supply Chain Operation Management With The Retailer Overconifdent

The overconfidence psychological preference theory is one of the important findings ofpsychology, which is widely used in behavioral economics to explain the strange phenomenonof the many financial markets and corporate governance. However the study of behavior ofthe supply chain considering overconfidence are few and far between. Summary sectionintroduces the methods and models of this article, as well as the behavior of supply chaindevelopment of the theory, overconfidence theory. The core part of the article studyoverconfidence theory into the supply chain management applications.Based on the past research on overconfidence, we present a model of an overconfidentnewsvendor who has both biased belief on mean and variance of demand. We investigate thedeviation on orders and profits between him and the rational one, then calculate the loss ofthese deviations caused by overconfidence. We discuss how supplier could take contractualmechanisms to achieve the maximize profits of supply chain, when confronted with aoverconfident retailer.We use principal-agent model obtaining the optimal franchise fee contract in supplychain with an overconfident retailer and a rational manufacturer, under information symmetryand information asymmetry. In both cases, the impact of retailer’s overconfidence to his effortand manufacturer’ profits are investigated. From the comparison we find that underinformation asymmetry the retailer’s effort level and the profits of the manufacturers are lessthan those under information symmetry, the difference is inversely proportional to the degreeof the retailer’s overconfidence.In a dual-channel supply chain system with a rational manufacturer and anoverconfidence retailer, we explore the impact of a retailer’s degree of overconfidence on thedual channel balanced pricing and the profits of manufacturers. Found that the degree ofoverconfidence can increase the equilibrium pricing of dual-channel, and a higher expectedprofit to the manufacturer. The manufacturer is willing to cooperate with overconfidenceretailers.