The Impact of Decision Rights on Innovation Sharing
49 Pages Posted: 12 May 2017 Last revised: 2 Jan 2019
Date Written: December 2018
While innovation sharing between a supplier and a buyer—a common practice in the automotive industry—can increase the efficiency of a supply chain, many suppliers are reluctant to do so. Sharing innovations leaves the supplier in a vulnerable position if the buyer exploits the information and re-shares the supplier’s innovation with competing suppliers. Anecdotal evidence from automotive suppliers tells that in some occasions the buyer’s decision is in the hands of a long-run focused employee (“engineer”), while in other occasions it is a short-run focused employee (“procurement manager”) who has more control. To examine how the allocation of decision rights to employees with different time horizons affects collaboration between the two firms, we model a buyer-supplier relationship where the buyer is a dual decision maker, consisting of long-run and short-run focused employees. We characterize the equilibrium of this model and show that the frequency of collaborative outcomes increases from a case where the decision is made by an employee with a short-term objective, to a case where the decision is made jointly, to a case where a decision is made by an employee with a long-run objective. Our experimental results verify this prediction, for the most part. An important result not predicted by the theory is that in the joint control case, both employees become significantly less trustworthy. With an additional treatment which allows for free-form communication, we identify social interaction effects in the form of a “bias to agreement” as a plausible driver of the more competitive behavior.
Keywords: behavioral operations, innovation sharing, trust and trustworthiness, collaboration in supply chains
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