Generous, Spiteful, or Profit Maximizing Suppliers in the Wholesale Price Contract: A Behavioral Study

Abstract:     
Prior experimental research shows that — in aggregate — decision makers do not set wholesale price contracts which maximize supplier profits. However, these deviations from optimal have not been carefully examined at an individual level. In this study, suppliers setting wholesale price contracts are willing to sacrifice their own profits to reach a more equitable split in ways that are both generous and spiteful depending on how the profit-maximizing contract compares to their idea of a fair contract. Suppliers in this study moved nearer to what they self-reported to be their ideal allocations, especially when they indicated a high degree of concern for fairness. In short, people like to earn money, but they also care about social preferences and make trade-offs between these two often conflicting influences. They are generous, spiteful, and profit seeking as the situation warrants consistent with their stated preferences and, in fact, are more often generous than spiteful.

Number of Pages in PDF File: 24

Keywords: Behavioral Operations, wholesale price, fairness, supply chain, newsvendor, behavior, newsvender

working papers series