Reputation and Mechanism Choice in Procurement Auctions - An Experiment

Heinrich, Timo; Brosig-Koch, Jeannette

doi:10.2139/ssrn.1832326

“…There is experimental evidence of this in the Operations Management literature.Özer et al (2011) find that trust and cooperation can be reinforced by reputation concerns in the context of forecast information sharing. Heinrich and Brosig-Koch (2011) find that when buyers can consider the reputation of bidders in procurement auctions, bidders supply higher quality leading to higher market efficiencies 3 . We consider first a setting where complete contracting, integration and relational incentives are not present to provide clear and direct evidence for the importance of trustworthiness.…”

Section: Literature Surveymentioning

confidence: 99%

Can Trustworthiness in a Supply Chain Be Signaled?

Beer

¹

,

Ahn

²

,

Leider

³

2018

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The relationship between a buyer and its suppliers is important and often relies on factors beyond the terms of a contractual agreement. Buyers can therefore benefit from identifying trustworthy suppliers. We argue that pre-contractual actions by the supplier, for example making costly buyer-specific investments without a long-term contract, can signal a supplier's trustworthiness. We develop a theoretical model to reflect supplier trustworthiness, and identify when a buyer can benefit from identifying trustworthy suppliers. We show that costly relationship-specific investments can serve as a signal of trustworthiness, and that supply chain profits increase when trustworthy suppliers are able to identify themselves in this fashion. We demonstrate the importance of the signaling mechanism using laboratory experiments. The experimental results show that relationship-specific investments lead to more collaborative transactions, with buyers offering higher prices and suppliers reciprocating with higher quality goods. This results in increased profits for both buyers and suppliers. Additionally, we show that the benefit of the relationship-specific investment depends directly on the signaling mechanism. Finally, we show that the benefits of buyer-specific investments for both suppliers and buyers are strengthened when firms interact repeatedly.

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Anwendung und Grenzen spieltheoretischer Vergabeoptimierung

Pfeiffer¹

2021

Spieltheorie – Erfolgreich Verhandeln Im Einkauf

0

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Can Trustworthiness in a Supply Chain Be Signaled?

Beer

¹

,

Ahn

²

,

Leider

³

2014

View full text Add to dashboard Cite

The relationship between a buyer and its suppliers is important and often relies on factors beyond the terms of a contractual agreement. Buyers can therefore benefit from identifying trustworthy suppliers. We argue that pre-contractual actions by the supplier, for example making costly buyer-specific investments without a long-term contract, can signal a supplier's trustworthiness. We develop a theoretical model to reflect supplier trustworthiness, and identify when a buyer can benefit from identifying trustworthy suppliers. We show that costly relationship-specific investments can serve as a signal of trustworthiness, and that supply chain profits increase when trustworthy suppliers are able to identify themselves in this fashion. We demonstrate the importance of the signaling mechanism using laboratory experiments. The experimental results show that relationship-specific investments lead to more collaborative transactions, with buyers offering higher prices and suppliers reciprocating with higher quality goods. This results in increased profits for both buyers and suppliers. Additionally, we show that the benefit of the relationship-specific investment depends directly on the signaling mechanism. Finally, we show that the benefits of buyer-specific investments for both suppliers and buyers are strengthened when firms interact repeatedly.

show abstract

Reputation and Mechanism Choice in Procurement Auctions - An Experiment

Cited by 3 publications

References 34 publications

Can Trustworthiness in a Supply Chain Be Signaled?

Can Trustworthiness in a Supply Chain Be Signaled?

Anwendung und Grenzen spieltheoretischer Vergabeoptimierung

Can Trustworthiness in a Supply Chain Be Signaled?

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