Supply-chain performance anomalies: Fairness concerns under private cost information

2016 ◽  
Vol 252 (1) ◽  
pp. 170-182 ◽  
Author(s):  
Fei Qin ◽  
Feng Mai ◽  
Michael J. Fry ◽  
Amitabh S. Raturi
Keyword(s):  
Supply Chain ◽  
Supply Chain Performance ◽  
Cost Information ◽  
Private Cost ◽  
Fairness Concerns

Private Information and Dynamic Bargaining in Supply Chains: An Experimental Study

2020 ◽  
Author(s):  
Andrew M. Davis ◽  
Kyle Hyndman
Keyword(s):  
Supply Chain ◽  
Private Information ◽  
Human Subjects ◽  
Problem Definition ◽  
Bargaining Solution ◽  
Additional Experiment ◽  
Cost Information ◽  
Private Cost ◽  
Managerial Implications ◽  
Verifiable Disclosure

Problem definition: We conduct a controlled human-subjects experiment in a two-tier supply chain where a supplier’s per-unit production cost may be private information while bargaining with a buyer. Academic/practical relevance: Academically, supply chain studies often assume full-information or highly structured bargaining. We consider private information with dynamic, unstructured bargaining. In practice, a buyer may not know its supplier’s cost exactly and interact with its supplier in a back-and-forth bargaining environment. Thus, understanding how a supplier’s private cost information affects both supply chain outcomes and bargaining is new to the literature and relevant to practice. Methodology: We employ insights from mechanism design to generate restrictions on the space of agreements and solve for a specific bargaining solution under private information to generate precise predictions. These predictions are then tested through a human-subjects experiment. Results: In our experiment, theory predicts that all supplier types should earn at least 50% of total profits when their cost information is private. However, we find that high-cost suppliers earn a disproportionately low share of total profits under private information, 20.16%. We show that this is because buyers, under private information, act as if they are bargaining with the lowest-cost supplier and suppliers do not appear to blame buyers for behaving this way. Based on these findings, we conduct an additional experiment where suppliers have the ability to communicate their private costs to buyers and observe that verifiable disclosure significantly increases profits for high-cost suppliers. Managerial implications: High-cost suppliers actually suffer from having their costs as private information, which runs counter to theory. However, if high-cost suppliers can credibly disclose their costs to buyers, they can significantly increase profits. Lastly, although private information does not lead to more disagreements, negotiations do take longer, which can be costly to firms.

Procurement for Assembly Under Asymmetric Information: Theory and Evidence

2021 ◽  
Author(s):  
Andrew M. Davis ◽  
Bin Hu ◽  
Kyle Hyndman ◽  
Anyan Qi
Keyword(s):  
Supply Chain ◽  
Mechanism Design ◽  
Operations Management ◽  
Bargaining Power ◽  
Human Subjects ◽  
Cost Information ◽  
Supply Chain Efficiency ◽  
Private Cost ◽  
Dynamic Bargaining ◽  
Sequential Contracting

We study an original equipment manufacturer (OEM) purchasing two inputs for assembly from two suppliers with private cost information. The OEM can contract with the two suppliers either simultaneously or sequentially. We consider both cases in which the OEM has relatively equal bargaining power (the dynamic bargaining institution) or substantial bargaining power (the mechanism design institution). For the dynamic bargaining institution, we show that in sequential bargaining, the supply chain profit is higher, the OEM earns a lower profit, the first supplier earns a higher profit, and the second supplier may earn a higher or lower profit, than compared with simultaneous bargaining. For the mechanism design institution, we show that all players’ profits are the same in simultaneous and sequential contracting. We also benchmark against a case where the OEM procures both inputs from a single integrated supplier (a dyadic supply chain). We then test these predictions in a human-subjects experiment, which supports many of the normative predictions qualitatively with some deviations: an OEM with relatively equal bargaining power weakly prefers to contract with suppliers simultaneously, whereas an OEM with substantial bargaining power prefers to contract with suppliers sequentially. In addition, the OEM’s profit and supply chain efficiency are higher in the dyadic supply chain than the assembly system. This paper was accepted by Charles Corbett, operations management.

Supply Chain Performance Management

Controlling ◽  
2003 ◽  
Vol 15 (11) ◽  
pp. 615-622 ◽  
Author(s):  
Carsten Glohr
Keyword(s):  
Supply Chain ◽  
Performance Management ◽  
Supply Chain Performance
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