Topic:  The Blessing of Bounded Rationality in Distribution Channels

Time & Date: 9:30 -10:30 am, Thursday, April 22, 2021

Venue: Room 103, Dao Yuan Building

Speaker: Prof. Tony Haitao Cui, University of Minnesota

Zoom Meeting ID: 559 916 3678, (Passcode: 962062)

Abstract

The extensive adoption of cost-plus pricing by retailers in distribution channels is a puzzling phenomenon, considering the fact that retailers can improve their profits by best-responding to the wholesale prices announced by their suppliers/manufacturers. In contrast to a dyadic channel with full rationality, where the best response pricing is optimal for the retailer and a deadweight loss is incurred, we find that a simple cost-plus pricing can be a blessing if the retailer is boundedly rational. More interestingly, we characterize the conditions under which all channel members, including the retailer, can benefit from the cost-plus pricing. Such a result is robust when either the manufacturer or the retailer is the Stackelberg leader in a dyadic channel, and when the setting involves multiple, competing retailers. Thus, the cost-plus pricing practice driven by retailers’ bounded rationality serves as a natural mechanism by which firms engage in decisions that help alleviate double-marginalization and benefit both the manufacturer and the retailer.

Biography

Dr. Tony Haitao Cui is Professor of Marketing, Deputy Associate Dean for Global DBA, Ecolab-Pierson Grieve Chair in International Marketing at the Carlson School of Management, University of Minnesota, and Affiliated Professor at the Industrial Engineering Department of U of Minnesota. He is the Vice President of Behavioral Operations Research and Management Chapter of Operations Research Society of China. Cui serves as Department Editor at Service Science, Senior Editor at Production and Operations Management, Guest Associate Editor at Management Science, and serves on the editorial board of Journal of Marketing Research, Journal of Marketing Science, Journal of Operations Management, and Marketing Science.

Professor Cui has been devoted to applying behavioral and experimental economics to business decision making. Cui is among the small cohort of pioneers in this emerging academic area. His research has been published on top tier business journals including JMR, JAMS, JEBO, Management Science, Marketing Science, POM, and SMJ. Cui has been named the Marketing Science Institute Young Scholars in 2011, 3M Non-Tenure Faculty Award, Management Science Meritorious or Distinguished Service Awards from 2009 until 2019, Marketing Science Service Award in 2013 and 2014, and was selected as an AMA-Sheth Doctoral Consortium Fellow in 2004. He was named the Marketing Science Institute Inaugural MSI Scholars in 2018 (the award recognizes “individuals’ excellence in scholarship and top scholars who are setting the research agenda in their field”), selected by Carlson CHEMBA EMBA students as the "Popular Professor of The Year" in 2017, 2018 and 2019, “Carlson Teaching Award” in 2020, and was awarded the "Carlson Outstanding Research Award" in 2017. In 2019, he was awarded for Outstanding Teaching and Dedication to Helping Students Learn by the Center for Educational Innovation, University of Minnesota.

Dr. Cui received a B.Eng. in Industrial Engineering, a B.Eng. in Fluid Machinery and Fluid Engineering, and an IMBA, all from Tsinghua University. He also received an M.A. in Operations and Information Management and a Ph.D. in Managerial Science & Applied Economics, both from the Wharton School, University of Pennsylvania.