User delay costs and internal pricing for a service facility
Management Science
An experimental study of constant-sum centipede games
International Journal of Game Theory - Special issue on laboratory investigations of expectations in games: the Amsterdam papers
Information distortion in a supply chain: the bullwhip effect
Management Science - Special issue on frontier research in manufacturing and logistics
Capacity Allocation Using Past Sales: When to Turn-And-Earn
Management Science
Competitive proportional resource allocation policy for computational grid
Future Generation Computer Systems - Special issue: Computational science of lattice Boltzmann modelling
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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 need. We propose a model of bounded rationality based on the quantal response equilibrium, in which players are not perfect optimizers and they face uncertainty in their opponents' actions. We structurally estimate model parameters using the maximum-likelihood method. Our results confirm that retailers exhibit bounded rationality, become more rational through repeated game play, but may not converge to perfect rationality as assumed by the Nash equilibrium. Finally, we consider several alternative behavioral theories and show that they do not explain our experimental data as well as our bounded rationality model. This paper was accepted by loana Popescu, guest editor, operations management.