The impacts of the supplier's optimism levels on pricing decisions under Knightian uncertainty

GAO Yongling

Systems Engineering - Theory & Practice ›› 2017, Vol. 37 ›› Issue (9) : 2297-2305.

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PDF(656 KB)
Systems Engineering - Theory & Practice ›› 2017, Vol. 37 ›› Issue (9) : 2297-2305. DOI: 10.12011/1000-6788(2017)09-2297-09

The impacts of the supplier's optimism levels on pricing decisions under Knightian uncertainty

  • GAO Yongling
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Abstract

This paper considers Knightian uncertainties in the supplier's variable cost and the product's market price and examines the supplier's pricing problem for three contracts (fixed-price, cost-plus and market-based pricing) by using the α -maxmin multiple-priors expected utility and the Nash bargaining model. The impacts of optimism and ambiguity on pricing decisions are explored. Results show the fixed price decreases with optimism levels about the cost but increases with optimism levels about the market price. The impacts of ambiguity degrees about the cost (the market price) on pricing outcomes depend on the supplier's optimism levels about the cost (the market price). The supplier's negotiation power does not affect the relationship between the target price under the market-based pricing contract and optimism levels about the cost. But it determines the relationship between the target price and optimism levels about the market price. This study provides theoretical support for analyzing suppliers' pricing behaviors under uncertainty.

Key words

suppliers / pricing / Knightian uncertainty / optimism levels / purchasing contracts

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GAO Yongling. The impacts of the supplier's optimism levels on pricing decisions under Knightian uncertainty. Systems Engineering - Theory & Practice, 2017, 37(9): 2297-2305 https://doi.org/10.12011/1000-6788(2017)09-2297-09

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Funding

National Natural Science Foundation of China (71201177); Beijing Higher Education Young Elite Teacher Project (YETP0967); Humanities and Social Science Research Project of Ministry of Eduation of China (17YJC630027)
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