Emergency-Dependent Supply Decisions with Risk Perception and Price Control

Abstract EN

This paper studies the impact of emergencies on the supplier’s decision-making behaviors including production and information sharing in consideration of consumer risk perception, consumer loss aversion phenomenon, and government price control.

The intensity of emergencies is sequential and emergencies can be divided into two types (positive or negative) according to their effect on demand.

When emergencies have negative effect on demand, the supplier’s sales will reduce and he would share information to the market.

When emergencies have positive effect on demand, we find that when the price is under price cap the supplier will not share information to the market; when the price reaches price cap, the supplier will share a certain amount of information to the market.

We were surprised to find that increasing demand is not always good for the supplier when there exist government price control and lost sales penalty, and information helps the supplier to effectively manipulate demand.