The coordination of supply chains by means of contracting mechanisms has been extensively explored theoretically but not tested empirically. We investigate the performance of three commonly studied supply chain contracting mechanisms: the wholesale price contract, the buyback contract, and the revenue-sharing contract. The simplified setting we consider utilizes a two-echelon supply chain in which the retailer faces the newsvendor problem, the supplier has no capacity constraints, and delivery occurs instantaneously. We compare the three mechanisms in a laboratory setting using a novel design that fully controls for strategic interactions between the retailer and the supplier. Results indicate that although the buyback and revenue-sharing contracts improve supply chain efficiency relative to the wholesale price contract, the improvement is smaller than the theory predicts. We also find that although the buyback and revenue-sharing contracts are mathematically equivalent, they do not generally result in equivalent supply chain performance.supply chain contracts, experimental economics
We investigate the effect of learning and communication on the bullwhip effect in supply chains. Using the beer distribution game in a controlled laboratory setting, we test four behavioral hypotheses -bounded rationality, experiential learning, systems learning, and organizational learning -by systematically manipulating training and communication protocols. We find that order variability decreases significantly in a setting in which participants start with hands-on experience, and are then allowed to formulate team strategies collaboratively. This result indicates that while training may improve individuals' knowledge and understanding of the system, it does not improve supply chain performance unless supply chain partners are allowed to communicate and share this knowledge. Our results indicate that the bullwhip effect is, at least in part, caused by insufficient coordination between supply chain partners. # 2005 Published by Elsevier B.V.
In this article, we model various forms of non‐optimizing behavior in a newsvendor setting, including biases such as recency, reinforcement, demand chasing, and anchoring, as well as unsystematic decision errors. We assume that a newsvendor may evaluate decisions by examining both past outcomes and future expected payoffs. Our model is motivated by laboratory observations under several types of supply chain contracts. Ordering decisions are found to follow multi‐modal distributions that are dependent on contract structures and incentives. We differ from previous research by using statistics to determine which behavioral factors are applicable to each decision maker. A great deal of heterogeneity was discovered, indicating the importance of calibrating a contract to the individual. Our analysis also shows that the profit performance and the effectiveness of co‐ordinating contracts can be affected by non‐optimizing behaviors significantly. We conclude that, in addition to the aggregate order quantities, the decision distributions should be considered in designing contracts.
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