Supplier competition: Theory vs. experiment

Roger Blake, Ehsan Elahi

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

We use laboratory experiments to investigate the decisions made by suppliers when they compete for the demand share of a buyer in an outsourcing setup. More specifically, we consider a supply chain in which a single buyer outsources the manufacture of a product to suppliers not on the basis of price, but rather on service. Three different criteria on which suppliers compete are evaluated: 1) a guaranteed specific inventory fill-rate, 2) guaranteed level of base-stock, and 3) a parameter optimizing the supply chain in the buyer's favor. Our results show that in most cases, suppliers' decisions are significantly different than the Nash equilibrium, meaning that they do not maximize profit. To explain this deviation of experimental results from what theory predicts, we examine the impact of three behavioral factors: (a) loss aversion, (b) rival chasing, and (c) the gamesmanship behavior which is defined as the suppliers' tendency to beat the competition instead of maximizing the profit.

Original languageEnglish
Title of host publicationIEOM 2015 - 5th International Conference on Industrial Engineering and Operations Management, Proceeding
PublisherInstitute of Electrical and Electronics Engineers Inc.
ISBN (Electronic)9781479960651
DOIs
Publication statusPublished - 23 Apr 2015
Externally publishedYes
Event5th International Conference on Industrial Engineering and Operations Management, IEOM 2015 - Dubai, United Arab Emirates
Duration: 03 Mar 201505 Mar 2015

Publication series

NameIEOM 2015 - 5th International Conference on Industrial Engineering and Operations Management, Proceeding

Conference

Conference5th International Conference on Industrial Engineering and Operations Management, IEOM 2015
Country/TerritoryUnited Arab Emirates
CityDubai
Period03/03/201505/03/2015

Keywords

  • Behavioral Operations Management
  • Gamesmanship Equilibrium
  • Inventory Competition
  • Optimal Mechanism
  • Outsourcing
  • Quantal Response Equilibrium
  • Service Competition

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