Behavioral Regularities in Joint Pricing-Ordering Decisions

Abstract

Joint pricing-ordering decisions require coordinating two economically distinct yet inherently interdependent decisions: pricing governs demand generation, whereas ordering governs demand fulfillment. While the normative literature provides sharp predictions for these joint decisions, much less is known about how decision makers actually coordinate them under uncertainty. We investigate this question through an incentive-compatible laboratory experiment in a stochastic joint pricing-ordering newsvendor environment, systematically varying unit ordering cost and market uncertainty across six treatments. We identify two previously undocumented behavioral regularities. First, pricing exhibits pronounced price rigidity: relative to the stochastic prediction, observed prices adjust substantially less than ordering quantities when operating conditions change. Second, behavioral deviations exhibit bias shifting: the dominant behavioral deviation systematically reallocates across decision dimensions. Under low-cost environments, deviations are concentrated primarily in ordering decisions, whereas under high-cost environments they shift toward pricing decisions. These regularities are robust across treatment averages and individual-level behavior and persist over time. To explain these findings, we propose a Certainty-Equivalent Heuristic (CEH), under which decision makers replace uncertain market potential with its expectation and solve the resulting deterministic problem. CEH naturally generates smoother comparative statics than the stochastic optimum, providing a unified explanation for both price rigidity and bias shifting. Prediction comparisons, individual-level evidence, and structural estimation consistently support this interpretation, with CEH outperforming both the stochastic prediction and the main alternative Cost-Mean anchor. More broadly, our findings suggest that understanding behavioral bias in multidimensional operational decisions requires identifying not only whether biases arise, but also how they are allocated across interdependent decision dimensions.

Keywords: Joint decisions; Price; Inventory; Behavioral experiment; Decision simplification