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Supplier participation in digital transformation of a two-echelon supply chain: Monetary and symbolic incentives

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  • Liu, Weihua
  • Wei, Shuang
  • Li, Kevin W.
  • Long, Shangsong

Abstract

By employing four game models, this paper examines the impact of both monetary and symbolic incentives on supplier participation in digital transformation of a two-echelon supply chain. We find that in the presence of monetary incentives, the supplier may exhibit free riding behavior when the buyer’s cost-sharing is sufficiently high, thereby leaving the buyer with no incentive to motivate the supplier. In contrast, a hybrid contract combining monetary with symbolic incentives enhances supplier participation. As the hybrid incentive is not always effective, we propose an improved hybrid contract with a reward-punishment mechanism to better motivate the supplier. Analytical results reveal that both members enjoy higher profitability when the buyer’s reward and punishment scheme is set within a reasonable range.

Suggested Citation

  • Liu, Weihua & Wei, Shuang & Li, Kevin W. & Long, Shangsong, 2022. "Supplier participation in digital transformation of a two-echelon supply chain: Monetary and symbolic incentives," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 161(C).
    • Handle: RePEc:eee:transe:v:161:y:2022:i:c:s1366554522000813
    DOI: 10.1016/j.tre.2022.102688
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