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

32 Pages Posted: 11 Nov 2012 Last revised: 8 Feb 2016

Julie Niederhoff

Syracuse University

Panos Kouvelis

Washington University

Date Written: February 3, 2016

Abstract

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 rarely been examined at an individual level. In this study, presented with scenarios that differ in terms of how profit is shared between retailer and supplier, suppliers set wholesale price contracts which deviate from profit-maximization in ways that are either generous or spiteful. On an individual basis, these deviations were found to be consistent with how the profit-maximizing contract compares to the subject’s idea of a fair contract. Suppliers moved nearer to self-reported ideal allocations when they indicated a high degree of concern for fairness, consistent with previously proposed fairness models, and were found to be more likely to act upon generous inclinations than spiteful ones.

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

Suggested Citation

Niederhoff, Julie and Kouvelis, Panos, Generous, Spiteful, or Profit Maximizing Suppliers in the Wholesale Price Contract: A Behavioral Study (February 3, 2016). Available at SSRN: https://ssrn.com/abstract=2173555 or http://dx.doi.org/10.2139/ssrn.2173555

Julie Niederhoff (Contact Author)

Syracuse University ( email )

721 University Ave
WSOM 630
Syracuse, NY 13244-2130
United States

Panos Kouvelis

Washington University ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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