Abstract
The experiment presented in Chap. 4 shows a subtle way to measure the suppliers’ trust in supply chain interactions by analyzing the signal probability in a screening game. In contrast to the experiment presented in the following section, the supplier could choose out of 66 distinctive screening contracts which were generated with respect to the supplier’s assessment of the buyer’s private information (see payoff table in the sample instructions, Appendix 2 in Chap. 4). Yet, in the following experiment the number of options was substantially reduced, as previous research states that the number of options in a game can influence the decision maker’s behavior (see Ho and Weigelt 1996). Hence, the number of options was reduced to either offering a contract as if under full information or offering a screening contract. A closer look on the payoff tables used in the experiment introduced in Chap. 4 (see payoff table in the sample instructions, Appendix 3 in Chap. 4) and the underlying study (see Table 5.1) shows that the reduction of options makes the differences between the options more salient for the participants of the experiment. In other words, it is much easier for the subjects to analyze what would have happened if another contract would have been chosen, when there are only 4 options instead of 66. This approach was also chosen by Bolton and Katok (2008) who reduce the number of ordering options in a newsvendor setting. Bolton and Katok (2008) find that this reduction indeed influences the decision maker’s behavior, especially because there is the possibility of a focused feedback with respect to the limited number of options.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
This is, in 9% of all observations the buyers chose the contract \( {A_M} \) \( \left( {{A_H}} \right) \) while facing holding costs \( {h_L} \left( {{h_M}} \right) \).
- 2.
As an example, the average opportunity costs per buyer in case of one buyer having holding costs \( {h_L} \) and the other buyer \( {h_H} \) results from \( \left( {{P_{s,L}} - {P_{s,M}} + {P_{s,H}}} \right)/2 = 29.82 \).
- 3.
That is, 31.67%/33.33%.
- 4.
This assumption is supported by two findings. First, the data in Sect. 5.2.3 reveals that the buyers choose on average substantially less often the indifference contract in the punishment treatment. Yet, it is likely that the supplier’s assessment of the strategic risk is dependent upon the observed contract choices. This is, if the supplier observes considerably more often contract choices which might be indifference contract choices, then he is likely to perceive a higher strategic risk, and vice versa. Second, given this observation, the supplier has an instrument to punish the buyer for the perceived strategic risk. Therefore, it is concluded that the strategic risk is at worst equal to the baseline treatment, but likely to be smaller.
- 5.
The sign-test (two-sided) reveals no significant results for the hypothesis that buyers improve their performance compared to the screening benchmark: Baseline (p < 0.289), No discrimination (p < 0.581), Diverging supply chain (p < 0.607), Enforced self-selection (p < 1.00), Punishment (p < 0.727). Also, a Wilcoxon test gives no significant results: Baseline (p < 0.674), No discrimination (p < 0.650), Diverging supply chain (p < 0.532), Enforced self-selection (p < 0.326), Punishment (p < 0.674).
- 6.
The strategic risk might lead to F i – contract offers, because the supplier believes that the buyer chooses the signaled contract regardless of the actual holding cost realization. Nonetheless, even in this case it can be optimal to offer the screening contract in the no discrimination treatment when the buyers’ signals are not identical. Hence, there is a natural tendency towards the screening contracts even though the strategic risk is not eliminated.
References
Bolton GE, Katok E (2008) Learning by doing in the newsvendor problem: a laboratory investigation of the role of experience and feedback. Manuf Serv Oper Manag 10(3):519–538
Fischbacher U (2007) z-Tree: Zurich toolbox for ready-made economic experiments. Exp Econ 10(2):171–178
Ho TH, Weigelt K (1996) Task complexity, equilibrium selection, and learning: an experimental study. Manage Sci 42(5):659–679
Roundy R (1985) 98%-effective integer-ratio lot-sizing for one-warehouse multi-retailer systems. Manage Sci 31(11):1416–1430
Author information
Authors and Affiliations
Appendix: Sample Instruction (Translation into English)
Appendix: Sample Instruction (Translation into English)
Read the instructions carefully and raise your hands if you have any questions. If there are questions during the experiment, please raise your hand as well.
5.1.1 Starting Position
You are in a supply chain consisting of one supplier and two buyers. The supplier offers a contract to each buyer in order to deliver a certain product at the market price. Every buyer can decide on his own whether he accepts the offer or not. Hence, the supplier’s profits can differ between buyer 1 and buyer 2.
If a buyer rejects the supplier’s contract offer, he can source the product from an alternative supplier. In that case, the buyer yields a profit of 3 and the supplier yields zero profits. Nevertheless, the other supplier–buyer relationship is not influenced by the contract rejection.
If a buyer accepts the supplier’s contract offer, the supplier has the opportunity to withdraw the offer. In that case, both, the supplier and the buyer, yield zero profits. Nonetheless, the other supplier–buyer relationship is not influenced by the withdrawal.
The buyers face holding costs, as half of the order size is stored on average per period. Hence, the buyers’ holding costs increase the higher the order size and the higher the holding costs per item and period.
The supplier faces fixed costs per delivery. Since the supplier prefers large order sizes, and the buyer prefers low order sizes, the supplier has to compensate the buyer for agreeing upon larger order sizes.
Your Task: Agree Upon New Supply Conditions!
5.1.2 Information Availability
The supplier does not exactly know the buyer’s true holding costs. Yet, the supplier knows a probability distribution over the possible holding costs realizations. In the course of the experiment, the buyer’s holding costs are drawn independently from this probability distribution in every round. The buyer knows his true holding costs in every round.
There are three possible types of holding cost realizations, i.e., 1, 5, and 9 per item and period. The probabilities, with which these holding costs are realized, are summarized in the table below. These probabilities are known to both, the buyer and the supplier.
Holding costs (€) | 1 | 5 | 9 |
Probability (%) | 40 | 30 | 30 |
5.1.3 Contract Type
The buyers know their true holding costs realizations before the supplier’s contract offer. The supplier does not know these holding cost realizations. Yet, the buyers can independently signal their realizations to the supplier. This signal can – but does not necessarily needs to – be truthful.
The supplier has four contract offer options. He can either offer a single contract F1, F5, or F9, or a package consisting of three offers A = (A1, A5, A9). These options are mutually exclusive.
The contract offers F1, F5 and F9 maximize the supplier profits if the respective buyer faces holding costs of 1, 5 or 9.
However, if the supplier is uncertain about the buyers holding costs realization, the package A maximizes his expected profits instead, as long as he believes that the buyers choose the contract A1 with probability 40%, A5 with 30%, and A9 with 30%.
In case the supplier offers package A, the buyer has to choose one of the three contracts in the package. If the buyer chooses no offer, he sources from an alternative supplier. Given the buyer faces the holding costs realization 1, 5, or 9, then the contracts A1, A5, and A9 maximize his respective profits.
After the contract is concluded, the supplier can transfer an amount between 0 and his profits of the respective round to one or both buyers. The transferred amounts can differ between buyer 1 and buyer 2.
The following figure depicts the decision sequence:
5.1.4 How Are the Contract Corresponding Profits Calculated?
The following table summarizes the profits of the supplier and the respective buyer in dependence of the contract offer and the holding cost realization. Negative amounts depict a loss.
Example
The supplier offers the package A to both buyers. If buyer 1 faces holding costs of 5 per item and period and if he accepts A5, he yields a profit of 21.88. Yet, if buyer 2 faces holding costs of 1 per item and period and if he accepts A1, he yields a profit of 46.87. The supplier, thus yields a profit from the contract with buyer 1 of 42.27 and form the contract with buyer 2 of 73.13, i.e., the supplier yields a profit of 42.27 + 73.13 = 115.85.
If a buyer rejects the offer, the respective buyer yields profits of 3. In this case the supplier yields zero profit from the respective supplier-buyer relationship.
Example
The supplier offers F1 to buyer 1 and F5 to buyer 2. If buyer 1 accepts the offer and buyer 2 rejects the offer, the supplier’s profits result from 116.9 + 0 = 116.9. The profit of buyer 1 is dependent from his holding cost realization while buyer 2 yields a profit of 3.
If the supplier withdraws the offer, the supplier as well as the buyer yields zero profits.
Example
The supplier offers both buyers contract F9. Both buyers accept. The supplier decides to withdraw the offer from buyer 1. In this case, the supplier yields a profit of 0 + 36.9 = 36.9, buyer 1 yields zero profits, and the profits of buyer 2 depend on his holding cost realization.
Note that the table does not depict the amount transferred from the supplier to the buyer.
Profit supplier | Profit buyer with holding costs | |||
1 | 5 | 9 | ||
F1 | 116.9 | 3.1 | −76.9 | −156.9 |
Profit supplier | Profit buyer with holding costs | |||
1 | 5 | 9 | ||
F5 | 67.46 | 38.88 | 3.10 | −32.68 |
Profit supplier | Profit buyer with holding costs | |||
1 | 5 | 9 | ||
F9 | 36.90 | 56.43 | 29.77 | 3.10 |
Profit supplier | Profit buyer with holding costs | |||
1 | 5 | 9 | ||
A1 | 73.13 | 46.87 | −33.13 | −113.13 |
A5 | 42.72 | 46.77 | 21.88 | −3.00 |
A9 | 29.23 | 40.47 | 21.78 | 3.10 |
5.1.4.1 How Many Rounds Are Going to Be Played?
Thirty rounds are going to be played. In every round the holding costs realizations are drawn independently from previous rounds and independently between buyers.
5.1.4.2 Who Are My Team-Mates?
Your role as supplier/buyer is the same in every round. Your team-mates do not change in the course of the experiment. The identity of your team-mates is confidential throughout – and after – the experiment.
5.1.4.3 How Is the Experimental Payoff Calculated?
The experimental payoff will take place at the end of the experiment. Your payoff results from the sum of the round’s profits multiplied by 0.01, i.e., every experimental monetary unit exchanges to 1 cent.
If there are any questions, please raise your hand.
Good luck.
Rights and permissions
Copyright information
© 2011 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Voigt, G. (2011). The Impact of Contract Complexity, Supply Chain Configuration, and Out-of-Equilibrium Behavior on the Effectiveness of Information Sharing: A Second Laboratory Experiment. In: Supply Chain Coordination in Case of Asymmetric Information. Lecture Notes in Economics and Mathematical Systems, vol 650. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-20132-5_5
Download citation
DOI: https://doi.org/10.1007/978-3-642-20132-5_5
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-20131-8
Online ISBN: 978-3-642-20132-5
eBook Packages: Business and EconomicsBusiness and Management (R0)