Yinhao Zhang, Assistant Professor, Salisbury University：Modeling Strategic Thinking in Competitive Newsvendor Games
【Speaker】Yinhao Zhang, Assistant Professor, Salisbury University
【Title】Modeling Strategic Thinking in Competitive Newsvendor Games
【Venue】Room 453, Weilun Building, Tsinghua SEM
【Organizer】Department of Management Science and Engineering
【Abstract】This paper experimentally investigates ordering behavior in the competitive newsvendor problem. We consider a duopoly market setting with two identical newsvendors selling the same perishable good in a common market. Our experimental results indicate that average observed orders systematically deviate from the Nash equilibrium, and exhibit a similar pull-to-center pattern as in the classic non-competitive newsvendor experiments: average orders fall below the Nash equilibrium in the high-margin condition, and above the Nash equilibrium in the low-margin condition. More importantly, the observed orders in the duopoly market are significantly higher than that in the non-competitive newsvendor market, even in situations where standard inventory models predict no difference. We explain the ordering behavior using a strategic experience-weighted attraction (EWA) model, which captures the strategic interaction among players in game setting. Our empirical analysis shows that, compared with linear adaptive models without concerning strategic behavior, the strategic EWA model not only yields a better fit to the experimental data, but also generates more accurate predictions of future ordering behavior. Our research indicates the importance of modeling strategic behavior when analyzing behavioral decisions in competitive (game) environments.