Ration Gaming and the Bullwhip Effect

We model the workings of a single-supplier, 73-store supply chain as a dynamic discrete choice problem, adopting a generalized (S, s) inventory framework. We estimate the model with transaction-level data, spanning 3,251 products and 1,370 days. We find two phenomena: ration gaming (strategic inventory hoarding) and the bullwhip effect (the amplification of demand variability along the supply chain). To establish ration gaming, we show that upstream scarcity can trigger an inventory run, as the stores scramble to secure supply. And to establish the bullwhip effect, we show that shipments from suppliers are more variable than sales to customers. We confirm the long-standing hypothesis that ration gaming causes the bullwhip effect with a structural econometric model, estimating that the bullwhip effect would be 12% smaller in the counterfactual scenario without ration gaming incentives. To our knowledge, we develop the first empirical multi-echelon inventory model.