'Seemingly-Beneficial' Interventions

Forthcoming, Production and Operations Management

36 Pages Posted: 12 Jul 2019 Last revised: 30 Apr 2021

See all articles by Harish Guda

Harish Guda

Arizona State University

Milind Dawande

University of Texas at Dallas - Department of Information Systems & Operations Management

Ganesh Janakiraman

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: July 8, 2019

Abstract

Organizations routinely introduce hitherto-unexplored interventions to improve their supply chains. Consider a principal (e.g., a firm) that implements a “seemingly-helpful” intervention: For any fixed actions of the principal and the agents (e.g., consumers), the principal’s payoff is higher in the presence of the intervention than in its absence. While one would expect such well-intentioned interventions to benefit the principal, several papers within the OM literature show that the principal's equilibrium payoff can be hurt, even ignoring the intervention’s implementation cost. While this conclusion is often based on analyzing a single-shot, simultaneous-move game, repeated-interactions can also serve as an appropriate environment in many cases. A fundamental question arises: Does this conclusion hold even under repeated interactions?

We study this question using the framework of infinitely-repeated games and the notion of a precommitment equilibrium from the literature on reputation in repeated games. We identify two key characteristics that determine whether a seemingly-beneficial intervention helps, or can possibly hurt the firm: (a) nature of the intervention (ceteris paribus, does it induce agents to react in a manner favorable to the principal?), and (b) extent of interaction (single-shot at one extreme and infinitely-repeated at the other). Interestingly, we demonstrate the following two possibilities using settings analyzed in the recent OM literature: seemingly-beneficial interventions can (a) hurt the firm in a single-shot analysis but benefit under repeated interactions, and (b) continue to hurt the firm under repeated interactions. We also obtain easy-to-interpret conditions under which the benefit of such interventions is guaranteed under repeated interactions.

Keywords: Seemingly-Beneficial Interventions, Repeated Games, Precommitment Equilibrium

JEL Classification: L21, D11

Suggested Citation

Guda, Harish and Dawande, Milind and Janakiraman, Ganesh, 'Seemingly-Beneficial' Interventions (July 8, 2019). Forthcoming, Production and Operations Management, Available at SSRN: https://ssrn.com/abstract=3416634 or http://dx.doi.org/10.2139/ssrn.3416634

Harish Guda (Contact Author)

Arizona State University ( email )

Tempe, AZ
United States

Milind Dawande

University of Texas at Dallas - Department of Information Systems & Operations Management ( email )

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

Ganesh Janakiraman

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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