Generous, Spiteful, or Profit Maximizing Suppliers in the Wholesale Price Contract: A Behavioral Study
January 29, 2015
Prior experimental research shows that, in aggregate, decision makers acting as suppliers to a newsvendor do not set the wholesale price to maximize supplier profits. However, these deviations from optimal have not been carefully examined at an individual level. In this study, suppliers also set wholesale price contracts which deviate from profit-maximization in ways that are either generous or spiteful. These deviations are consistent with how the profit-maximizing contract compares to the subject’s idea of a fair contract. Suppliers moved nearer to what they self-reported to be their ideal allocations 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 they make trade-offs between these two oft-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: 28
Keywords: Behavioral Operations, wholesale price, fairness, supply chain, newsvendor, behavior, newsvenderworking papers series
Date posted: November 11, 2012 ; Last revised: January 30, 2015
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