Abstract:

In multi-period supply chains， upstream manufacturers may overpredict future demand changes， a behavioral bias that can intensify the bullwhip effect， while downstream retailers may strategically adjust inventory to influence future pricing. Yet their combined effects under demand uncertainty， especially regarding static versus dynamic pricing contracts， remain underexamined. This study analyzes a two-period supply chain with non-stationary demand， one manufacturer， and one retailer. First-period market size is normalized to one； second-period market size changes and may be overpredicted by the manufacturer. Using a dynamic game-theoretic framework， four two-period Stackelberg models are developed and solved by backward induction， differing in manufacturer expectation formation （rational expectations or overprediction） and contract type （static or dynamic pricing）. Findings show the retailer always prefers dynamic pricing. The manufacturer’s preference depends on demand conditions and expectation bias： under demand increases， both rational and overpredicting manufacturers prefer dynamic pricing； under slight decreases， rational manufacturers and those with mild or severe overprediction favor dynamic pricing， while moderate overprediction favors static pricing； under substantial decreases， rational and moderately overpredicting manufacturers prefer static pricing， while mildly and severely overpredicting manufacturers prefer dynamic pricing. Manufacturer overprediction always reduces its own profit， but its effects on the retailer and total supply chain are asymmetric， negative under demand increases， often beneficial under demand decreases. This study contributes by integrating non-stationary demand and manufacturer overprediction into one analytical framework， clarifying interactions among the Strategic Inventory Effect， Demand Change Effect， and Overprediction Effect， and offering practical insights for pricing contract selection under demand volatility and behavioral bias.

Key words: demand change, over-prediction, strategic inventory, dynamic pricing, wholesale price contract