Dynamic Responsive Pricing as a Mitigation Strategy Against Supply Chain Disruptions: An Agent-Based Model

Abstract

Supply Chain disruptions can result in immense financial losses for affected enterprises. Quantitative models which analyze the impact of supply chain disruptions and, in particular, the possible application of mitigation strategies can support the decision making process of practitioners to better cope with disruptions. Since existing approaches have mainly investigated the effects of backup supply and information exchange, further mitigation strategies need to be implemented. Therefore, we present an agent-based model in which the supply chain entities set their prices autonomously and dynamically based on their experienced total costs. We analyze whether dynamic responsive pricing is an appropriate strategy in the event of a disruption in case of price-sensitive customers. Our results illustrate that, in many cases, a dynamic price choice delivers better results than a fixed price choice. The value of optimal price elasticity increases the lower the price sensitivity becomes, but the speed of growth decelerates. However, if the price elasticity is too high, strong costs can occur and fixed prices become advantageous.