Impact of correlated price sensitive demand on the dynamics and economics of supply chains

Abstract

We investigate the dynamics of a supply chain with a price-sensitive, correlated, stochastic, linear demand model. We assume the exogenous market price follows a first-order auto-regressive AR(1) process. The demand process is a weighted function (w) of the current and previous market price, the market potential (a), and the positive demand sensitivity coefficient (b). We assume that a supplier faces five different types of customers in the market: responsive, selective, naive, speculative, and slow customers. A weighting factor w determines how each of the customers react to period-to-period price changes.