Consumers increasingly want to know more about where and how the products they purchase are being made. To create transparency requires a company to both gain visibility into its supply chain and disclose information to consumers. In this paper, we focus on the dimension of visibility and investigate when companies can benefit from greater supply chain visibility. To do so, we design an incentivized human–subject experiment to study two key questions: (i) How does supply chain visibility impact consumers’ valuations of a company’s social responsibility (SR) practices in its upstream supply chain? (ii) What roles do indirect reciprocity and consumers’ prosociality play in affecting their valuations under different levels of visibility? In our design, greater visibility is represented by lower uncertainty in the outcomes of a company’s SR efforts. Our results show that consumers value greater visibility regarding a company’s SR practices in the upstream supply chain. This is especially true if consumers exhibit a self-serving bias and use uncertainty as an excuse not to pay for SR. We also observe that high prosocial consumers do not exhibit strong indirect reciprocity. Conversely, indirect reciprocity significantly increases low prosocial consumers’ valuations under High visibility. Our work adds to the experimental literature focusing on transparency and SR (which has primarily studied disclosure) by examining the equally important but understudied dimension of visibility. Furthermore, our results on consumer heterogeneity offer insights into what SR information resonates with a company’s target consumers. The online appendix is available at https://doi.org/10.1287/msom.2017.0685 .

Problem definition: We examine how a profit-driven firm (she) can motivate better social responsibility (SR) practices by a supplier (he) when these practices cannot be perfectly observed by the firm. We focus on the firm’s investment in the supplier’s SR capabilities. To capture the influence of consumer demands, we incorporate the potential for SR information to be disclosed by the firm or revealed by a third party. Academic/practical relevance: Most firms have limited visibility into the SR practices of their suppliers. However, there is little research on how a firm under incomplete visibility should (i) invest to improve a supplier’s SR practices and (ii) disclose SR information to consumers. We address this gap. Methodology: We develop a game-theoretic model with asymmetric information to study a supply chain with one supplier and one firm. The firm makes her investment decision given incomplete information about the supplier’s current SR practices. We analyze and compare two settings: the firm does not disclose versus she discloses SR information to the consumers. Results: The firm should invest a high (low) amount in the supplier’s capabilities if the information she observes suggests the supplier’s current SR practices are poor (good). She should always be more aggressive with her investment when disclosing (versus not disclosing). This more aggressive strategy ensures better supplier SR practices under disclosure. When choosing between disclosing and not disclosing, the firm most likely prefers not to disclose when the supplier’s current SR practices seem to be average. Managerial implications: (i) Greater visibility helps the firm to better tailor her investment to the level of support needed. (ii) Better visibility also makes the firm more “truthful” in her disclosure, whereas increased third-party scrutiny makes her more “cautious.” (iii) Mandating disclosure is most beneficial for SR when the suppliers’ current practices seem to be average.

We study an NGO's decisions when it attempts to remove a potentially hazardous substance from commercial use in a market with competing firms. Specifically, we determine under what market and regulatory conditions an NGO should target the industry versus the regulatory body in order to influence firms to replace the substance.We examine how the NGO's strategy changes as the NGO's pragmatism (i.e., the extent to which the NGO incorporates firms' profits into its decision making) increases. Our results demonstrate that when the NGO is less pragmatic, it should examine the existing market structure to determine whether to target the industry or the regulatory body. However, as the pragmatism of the NGO increases, the NGO should increasingly leverage the competition between firms to ensure that a replacement is available to consumers. We examine multiple extensions including varying the competition dynamics, the NGO targeting both the industry and the regulatory body, the time discounting of replacement costs, and a firm potentially lobbying to counteract an NGO's activism.We show that the ability of a firm to lobby can benefit consumers by motivating the NGO to exert more effort and increase the market sensitivity to a substance, thereby forcing the firm to replace.

Material IQ (MiQ) is a new decision tool designed by GreenBlue to help suppliers safely share sensitive chemical‐toxicity data with their customers. As GreenBlue takes MiQ to market, it must determine under what market conditions to promote the use of MiQ and when to recommend that a buyer uses its implementation as an opportunity to work with an existing supplier. We study GreenBlue's problem in two parts. First, we investigate when a buyer can use a wholesale price premium and/or buyer–supplier cost sharing to improve a supplier's environmental performance. Based on our findings, we then develop insights into GreenBlue's strategy. We model both a single‐supplier and a supplier‐competition setting. We find that in the single‐supplier setting, if the buyer's optimal strategy is to offer the supplier a premium, then he also fully subsidizes her investment cost to build quality. By developing the supplier's capabilities, the buyer can increase the impact of the premium he offers. In the supplier‐competition setting, although cost sharing is less effective as a lever, cases can occur in which the buyer chooses to share costs and prevent the incumbent supplier from having to compete. From GreenBlue's perspective, promoting the use of MiQ and cost sharing are often viable strategies when there exists a one‐to‐one relationship between a buyer and a supplier. However, GreenBlue's strategy becomes more restricted when competition exists between suppliers. Only when the relative market awareness of quality is high and there is a dominant party in the supply chain should GreenBlue recommend the use of MiQ.

A s public awareness of environmental hazards increases, a growing concern for corporations is the potential negative environmental impact of their products and the chemicals these products contain. In this study, we analyze the optimal decisions of a firm when a substance within its product is identified as potentially hazardous. Although the substance is not currently regulated, regulation may occur in the future. Therefore, the firm must devise a strategy for the development and implementation of a replacement substance. In an environment where replacement costs can be millions of dollars, regulation is uncertain, and both consumer and non-governmental organization pressures exist, a carefully developed plan that balances costs and risks is critical for a firm. Our results demonstrate that as long as a threat of regulation exists, a firm should always dedicate resources toward developing a replacement substance. However, it is not always optimal for a firm to implement a developed replacement. Regarding competitive dynamics, we find that competition between firms can offset a low chance of a shift in consumer perception about a substance and compel firms to replace; however, competition can lead to inefficient outcomes in which firms incur avoidable costs to implement ahead of potential regulation.