To Communicate or Not? Inter-Firm Communication in Collaborative Projects

62 Pages Posted: 3 Dec 2018 Last revised: 29 Mar 2023

See all articles by Ruth Beer

Ruth Beer

City University of NY, Baruch College, Zicklin School of Business

Anyan Qi

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: October 12, 2022

Abstract

Inter-firm innovation projects often require tight collaboration among firms with complementary skills and resources. The success of such projects depends on all firms generating high-quality outputs, which can be difficult to attain for aspects of quality that are not easily observable or contractible. We consider a setting with a focal firm and her collaborating firm (henceforth, the collaborator) engaging in a joint project, where they make their quality decisions over time respectively, and study the firm's decision to communicate her quality output progress to her collaborator voluntarily. We first develop normative predictions using game-theoretic models by analyzing a reporting (resp., revealing) case, where the firm can report a not necessarily truthful quality (resp., the truthful quality) to the collaborator. We find that the firm should be indifferent between reporting and not reporting for all project values and should be indifferent between revealing and not revealing (resp., prefer revealing) for high (resp., low) project values. To test this prediction, we run an experiment following a 2x3 design varying the project value (high and low) and the form of communication (no communication, reporting, and revealing). We find that the quality provision is significantly lower than the normative prediction in all treatments. When the project value is high, the decision to report is beneficial to the firm (regardless of the reported quality), since the decision signals the firm's intention to contribute high quality. The decision to reveal is also beneficial for a firm, however, a different mechanism is at play in this case. The decision itself does not directly affect the quality provisions, but the revealed quality does as the collaborator waits to observe the truthful revealed quality and incorporates this information in choosing a quality later on. By contrast, when the project value is low, neither reporting not revealing are beneficial for a firm. In particular, the decision to report no longer acts as a positive signal as it is used by firms trying to deceive the collaborator and get an advantage.

Keywords: behavioral operations management, experiments, reporting, revealing, project management

JEL Classification: C72, C91, D21

Suggested Citation

Beer, Ruth and Qi, Anyan, To Communicate or Not? Inter-Firm Communication in Collaborative Projects (October 12, 2022). Available at SSRN: https://ssrn.com/abstract=3290267 or http://dx.doi.org/10.2139/ssrn.3290267

Ruth Beer

City University of NY, Baruch College, Zicklin School of Business ( email )

One Bernard Baruch Way
New York, NY 10010
United States

Anyan Qi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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