A Reverse Pricing Model for Multi-Tier Supply Chains

In recent years, reverse pricing has been marketed as a new pricing mechanism in e-commerce. Several e-markets such as priceline.com are being based on reverse pricing, thus on bids by potential customers instead of static prices by vendors. In this paper, we investigate whether it can also be used in business-to-business scenarios. In particular, we look at its potential contribution to reducing the bullwhip effect in multi-tier supply chains with local information and stochastic demand. The bullwhip effect suggests an increasing order variability as one moves down a supply chain. We propose to adopt reverse pricing for operational procurement decisions. We evaluate our proposal by conducting a simulation study using an agent-based simulation system, and can show that the novel approach results in a significant reduction of the bullwhip effect.