Experiments on supply chain contracting: effects of contract type and fairness concerns

Official URL: http://risc01.sabanciuniv.edu/record=b1534369 (Table of Contents)

In this thesis, we conduct experiments with human decision makers on supply chain contracting. We consider a simple manufacturer-retailer supply chain scenario where the retailer faces the newsvendor problem. Building on Sahin and Kaya (2011), we compare the experimental performance of three contract types (wholesale price, buyback and revenue sharing contracts) between the firms with theoretical predictions, and among each other. We are interested in the manufacturer’s contract parameter decisions, the retailer’s stock quantity decision, and the firms’ profits. In theory, in terms of supply chain efficiency, the buyback and revenue sharing contracts should be equivalent to each other, and should be superior to the wholesale price contract. Our experiments, however, find the wholesale price contract to perform better, and the revenue sharing contract to perform worse than theoretical predictions. The profit distribution between the firms is also much more equitable than predicted. The primary reason for these differences is the biases in retailers’ stock quantity decisions. We determine the factors that affect the retailer’s stock quantity decision using feature selection and classification techniques. Using a multiple regression model, we show how fairness concerns affect this decision. We also observe short-run relationships between the firms to cause better performance in experiments than long-run relationship, perhaps due to destructive gaming between the firms.