The bullwhip effect, demand uncertainty, and cost structure

Clara Xiaoling Chen, Jing Liang, Shilei Yang, Jing Zhu

Research output: Contribution to journalArticlepeer-review


The firm-level bullwhip effect is the amplification of demand uncertainty along a supply chain—that is, fluctuations in production (for manufacturing firms) or purchases from suppliers (for retailers or wholesalers) in a firm tend to be greater than its demand fluctuations. We predict that the bullwhip ratio (a proxy for the bullwhip effect) amplifies the relation between demand uncertainty and cost structure. We expect this amplifying effect because the bullwhip ratio determines the extent to which demand uncertainty translates into uncertainty in production or purchases, which, in turn, affects cost structure. Using data from public US firms over the 1990–2020 period, we find results consistent with our prediction. Specifically, we find that both the negative relation between demand uncertainty and cost elasticity in the manufacturing sector and the positive relation between the two in the retail/wholesale sectors are stronger for firms with higher bullwhip ratios. We contribute to the literature on cost structure by highlighting the important role of the bullwhip effect in cost structure decisions.

Original languageEnglish (US)
Pages (from-to)195-225
Number of pages31
JournalContemporary Accounting Research
Issue number1
StatePublished - Mar 1 2024
Externally publishedYes


  • bullwhip effect
  • cost behavior
  • cost structure
  • demand uncertainty

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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