Reduction of the bullwhip effect in supply chains through speculation

Abstract

Agent-based simulations show that some kinds of speculators are able to stabilize the price in a market and to make this market more efficient. Instead of a single market, we consider a supply chain comprising a sequence of three markets in order to check that such speculators can also stabilize a supply chain. Specifically, we verify if these speculators reduce the price fluctuations caused by a phenomenon called the bullwhip effect, which is the amplification of order variability in supply chains. Our simulations show that speculation reduces such price fluctuations, even if price bubbles may appear. Another point is that the speculators we consider lose money in reducing these fluctuations while all the other agents would get richer and richer when the equilibrium is achieved in every market of the supply chain. © 2006 Springer-Verlag Berlin Heidelberg.