Information Sharing, Advice Provision, or Delegation: What Leads to Higher Trust and Trustworthiness?

Abstract

In many market settings, a customer often obtains assistance from a supplier (or service provider) to make better-informed decisions regarding the supplier’s product (or service). Because the two parties often have conflicting pecuniary incentives, customer trust and supplier trustworthiness play important roles in the success of these interactions. We investigate whether and how the process through which assistance is provided can foster trust and trustworthiness, and thus facilitate better cooperation. We compare three prevalent assistance processes: information sharing, advice provision, and delegation. We propose that, even if the pecuniary incentives of both parties do not vary from one assistance process to another, the assistance process itself impacts the customer’s and supplier’s nonpecuniary motives that give rise to trust and trustworthiness. Consequently, the assistance process affects the level of cooperation and payoffs. We test our behavioral predictions through laboratory experiments based on a retail distribution setting. We quantify the impact of different assistance processes on trust, trustworthiness and channel performance, and identify the underlying drivers of those impacts. Our results offer insight into the role of the assistance process in managing supplier assistance effectively and why certain assistance processes may lead to more successful outcomes than others even if the pecuniary incentives remain unaltered. The online appendix is available at https://doi.org/10.1287/mnsc.2016.2617 . This paper was accepted by Vishal Gaur, operations management.

The Effect of Communication Media on Information Sharing in Supply Chains

“…First, we used a student subject pool for our experiments. This is well in line with other studies that analyze information sharing in supply chains (Hyndman et al 2013, € Ozer et al 2011, Spiliotopoulou et al 2016). Yet, a cautionary note that decision makers in practice might have a different set of skills, experience, and beliefs that render communication less effective is warranted.…”

“…In this study, we analyze how pre-game communication affects the impact of simple and efficient means of sharing private information (i.e., simple one-way text messages) on an operative basis (e.g., weekly or monthly) in a supply chain contracting context. Previous research shows that such simple messages are somewhat effective since truthful messages meet trusting recipients, and yet efficient outcomes are generally not achieved (Hyndman et al 2013, € Ozer et al 2011, Spiliotopoulou et al 2016. We show that the efficiency enhancing effects of information sharing can be boosted by any form of verbal communication taking place prior to actually sharing the private demand information via simple one-way messages.…”

“…Yet, a cautionary note that decision makers in practice might have a different set of skills, experience, and beliefs that render communication less effective is warranted. As an example, the study from € Ozer et al (2014) shows that the extent of trust and trustworthiness varies with the social distance of the supply chain members. We further note that all of the students were at least fluent in German.…”

“…Another stream of behavioral research investigates the information sharing process in supply chains under asymmetric information. One stream tested whether information sharing is, despite the game-theoretic benchmark, effective in supply chains operating under (exogenous) wholesale price contracts (Hyndman et al 2013, € Ozer et al 2011, Spiliotopoulou et al 2016) and nonlinear contracting schemes (Inderfurth et al 2013, Sadrieh and Voigt 2017, Scheele et al 2017. All of these studies show that the cheap-talk benchmark (shared information is uninformative and therefore ignored) is too pessimistic, but not obsolete.…”

Behavioral Contract Design Under Asymmetric Forecast Information

“…Potential coordination mechanisms that enhance efficiency include information sharing and/or menus of contracts. While we focus on menus of contracts, we note that Özer, Zheng, and Chen (), Özer, Zheng, and Ren (), and Özer, Subramanian, and Wang () find that (theoretically ineffective) information sharing can also enhance supply chain performance.…”