IDEAS home Printed from https://ideas.repec.org/a/spr/ijogbc/v17y2022i2d10.1007_s42943-021-00039-3.html
   My bibliography  Save this article

The Behavioral Effects of Competition Intensity and Cost Structure on Competing Suppliers: An Experimental Study in the Context of the USA

Author

Listed:
  • Mohsen Ahmadian

    (University of Massachusetts Boston)

  • Ehsan Elahi

    (University of Massachusetts Boston)

  • Roger Blake

    (University of Massachusetts Boston)

Abstract

This research investigates how competition intensity and differences in cost structures affect decisions made by competing suppliers and the role that behavioral factors play as influences. We use controlled laboratory experiments to study the scenario of suppliers competing for a share of demand being outsourced by a single buyer. The buyer seeks to maximize the service level provided by suppliers by allocating based on different performance measures which create varying levels of competition intensity. The experimental treatments include those performance measures as well as differences in supplier cost structures. Our experimental results show that in the majority of cases suppliers’ decisions do not confirm theoretical predictions from the Nash equilibrium, and we find patterns in those deviations. To explain them, we first evaluate behavioral factors found in the literature including bounded rationality, learning, and other-regarding behavior. We then introduce a new behavioral factor, rival-chasing. Rival-chasing builds on other-regarding behavior by considering competitors’ actions in addition to their outcomes. We find that rival-chasing can explain patterns in suppliers’ behavior that cannot be explained by other behavioral factors.

Suggested Citation

  • Mohsen Ahmadian & Ehsan Elahi & Roger Blake, 2022. "The Behavioral Effects of Competition Intensity and Cost Structure on Competing Suppliers: An Experimental Study in the Context of the USA," International Journal of Global Business and Competitiveness, Springer, vol. 17(2), pages 117-129, December.
    • Handle: RePEc:spr:ijogbc:v:17:y:2022:i:2:d:10.1007_s42943-021-00039-3
    DOI: 10.1007/s42943-021-00039-3
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s42943-021-00039-3
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s42943-021-00039-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yannan Jin & Qiying Hu & Sang Won Kim & Sean X. Zhou, 2019. "Supplier Development and Integration in Competitive Supply Chains," Production and Operations Management, Production and Operations Management Society, vol. 28(5), pages 1256-1271, May.
    2. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
    3. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    4. Lisa Anderson & Beth Freeborn, 2010. "Varying the intensity of competition in a multiple prize rent seeking experiment," Public Choice, Springer, vol. 143(1), pages 237-254, April.
    5. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-1289, November.
    6. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    7. Salvatore Cannella & Carmela Di Mauro & Roberto Dominguez & Alessandro Ancarani & Florian Schupp, 2019. "An exploratory study of risk aversion in supply chain dynamics via human experiment and agent-based simulation," International Journal of Production Research, Taylor & Francis Journals, vol. 57(4), pages 985-999, February.
    8. Jianxin Chen & Yong-Wu Zhou & Yuanguang Zhong, 2017. "A pricing/ordering model for a dyadic supply chain with buyback guarantee financing and fairness concerns," International Journal of Production Research, Taylor & Francis Journals, vol. 55(18), pages 5287-5304, September.
    9. Harshad Chandrakant Sonar & Vivek Khanzode & Milind Akarte, 2020. "A Conceptual Framework on Implementing Additive Manufacturing Technology Towards Firm Competitiveness," International Journal of Global Business and Competitiveness, Springer, vol. 15(2), pages 121-135, December.
    10. Xia Zhao & Ling Xue & Fuqiang Zhang, 2014. "Outsourcing Competition and Information Sharing with Asymmetrically Informed Suppliers," Production and Operations Management, Production and Operations Management Society, vol. 23(10), pages 1706-1718, October.
    11. Yanan Song & Xiaobo Zhao, 2017. "A newsvendor problem with boundedly rational strategic customers," International Journal of Production Research, Taylor & Francis Journals, vol. 55(1), pages 228-243, January.
    12. Elahi, Ehsan, 2013. "Outsourcing through competition: What is the best competition parameter?," International Journal of Production Economics, Elsevier, vol. 144(1), pages 370-382.
    13. Gérard P. Cachon & Fuqiang Zhang, 2007. "Obtaining Fast Service in a Queueing System via Performance-Based Allocation of Demand," Management Science, INFORMS, vol. 53(3), pages 408-420, March.
    14. Yefen Chen & Xiaobo Zhao, 2015. "Decision Bias in Capacity Allocation Games with Uncertain Demand," Production and Operations Management, Production and Operations Management Society, vol. 24(4), pages 634-646, April.
    15. Jain, Tarun & Hazra, Jishnu, 2017. "Dual sourcing under suppliers' capacity investments," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 103-115.
    16. Shanshan Hu & Zhixi Wan & Qing Ye & Wei Chi, 2017. "Supplier Behavior in Capacity Investment Competition: An Experimental Study," Production and Operations Management, Production and Operations Management Society, vol. 26(2), pages 273-291, February.
    17. Basak Kalkanci & Kay-Yut Chen & Feryal Erhun, 2011. "Contract Complexity and Performance Under Asymmetric Demand Information: An Experimental Evaluation," Management Science, INFORMS, vol. 57(4), pages 689-704, April.
    18. Abdullah Dasci & Kemal Guler, 2019. "Dynamic Strategic Procurement from Capacitated Suppliers," Production and Operations Management, Production and Operations Management Society, vol. 28(4), pages 990-1009, April.
    19. Lisa Anderson & Beth Freeborn, 2010. "Erratum to: Varying the intensity of competition in a multiple prize rent seeking experiment," Public Choice, Springer, vol. 143(1), pages 255-256, April.
    20. Villa, Sebastián & Castañeda, Jaime Andrés, 2018. "Transshipments in supply chains: A behavioral investigation," European Journal of Operational Research, Elsevier, vol. 269(2), pages 715-729.
    21. Tarun Jain & Jishnu Hazra & T. C. E. Cheng, 2020. "Bidding for outsourcing contracts with capacity investments and cost asymmetry," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 71(12), pages 1986-2012, December.
    22. Sanjay Kumar, 2021. "Structural Changes and Competitiveness of the Steel Industry in India: Assessed by Productivity Growth post Economic Reforms," International Journal of Global Business and Competitiveness, Springer, vol. 16(1), pages 39-50, June.
    23. Gary E. Bolton & Elena Katok, 2008. "Learning by Doing in the Newsvendor Problem: A Laboratory Investigation of the Role of Experience and Feedback," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 519-538, September.
    24. Cuihong Li & Zhixi Wan, 2017. "Supplier Competition and Cost Improvement," Management Science, INFORMS, vol. 63(8), pages 2460-2477, August.
    25. Anton Ovchinnikov & Brent Moritz & Bernardo F. Quiroga, 2015. "How to Compete Against a Behavioral Newsvendor," Production and Operations Management, Production and Operations Management Society, vol. 24(11), pages 1783-1793, November.
    26. Gregory T. Gundlach & Robert Frankel & Riley T. Krotz, 2019. "Competition Policy and Antitrust Law: Implications of Developments in Supply Chain Management," Journal of Supply Chain Management, Institute for Supply Management, vol. 55(2), pages 47-67, April.
    27. Saif Benjaafar & Ehsan Elahi & Karen L. Donohue, 2007. "Outsourcing via Service Competition," Management Science, INFORMS, vol. 53(2), pages 241-259, February.
    28. Cuihong Li, 2013. "Sourcing for Supplier Effort and Competition: Design of the Supply Base and Pricing Mechanism," Management Science, INFORMS, vol. 59(6), pages 1389-1406, June.
    29. Tianjun Feng & Yinghao Zhang, 2017. "Modeling Strategic Behavior in The Competitive Newsvendor Problem: An Experimental Investigation," Production and Operations Management, Production and Operations Management Society, vol. 26(7), pages 1383-1398, July.
    30. Yefen Chen & Xuanming Su & Xiaobo Zhao, 2012. "Modeling Bounded Rationality in Capacity Allocation Games with the Quantal Response Equilibrium," Management Science, INFORMS, vol. 58(10), pages 1952-1962, October.
    31. Zhaolin Li & Jennifer K. Ryan & Lusheng Shao & Daewon Sun, 2015. "Supply Contract Design for Competing Heterogeneous Suppliers under Asymmetric Information," Production and Operations Management, Production and Operations Management Society, vol. 24(5), pages 791-807, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sharifi, Rozhin & Razavi, Hamideh & Elahi, Ehsan, 2023. "Investigation of the ordering behavior of a retailer in the revenue sharing and buyback contracts considering round number bias," Journal of Retailing and Consumer Services, Elsevier, vol. 73(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Suresh P. Sethi & Sushil Gupta & Vipin K. Agrawal & Vijay K. Agrawal, 2022. "Nobel laureates’ contributions to and impacts on operations management," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4283-4303, December.
    2. Sheremeta, Roman, 2014. "Behavior in Contests," MPRA Paper 57451, University Library of Munich, Germany.
    3. Shan Li & Kay-Yut Chen & Ying Rong, 2020. "The Behavioral Promise and Pitfalls in Compensating Store Managers," Management Science, INFORMS, vol. 66(10), pages 4899-4919, October.
    4. Erik O. Kimbrough & Roman M. Sheremeta & Timothy Shields, 2011. "Resolving Conflicts by a Random Device," Working Papers 11-09, Chapman University, Economic Science Institute.
    5. Lacomba, Juan A. & Lagos, Francisco & Reuben, Ernesto & van Winden, Frans, 2017. "Decisiveness, peace, and inequality in games of conflict," Journal of Economic Psychology, Elsevier, vol. 63(C), pages 216-229.
    6. Hofstra, Nienke & Spiliotopoulou, Eirini, 2022. "Behavior in rationing inventory across retail channels," European Journal of Operational Research, Elsevier, vol. 299(1), pages 208-222.
    7. Tony Haitao Cui & Yinghao Zhang, 2018. "Cognitive Hierarchy in Capacity Allocation Games," Management Science, INFORMS, vol. 64(3), pages 1250-1270, March.
    8. García-Pola, Bernardo & Iriberri, Nagore & Kovářík, Jaromír, 2020. "Non-equilibrium play in centipede games," Games and Economic Behavior, Elsevier, vol. 120(C), pages 391-433.
    9. Matthew J. Walker & Elena Katok & Jason Shachat, 2023. "Trust and Trustworthiness in Procurement Contracts with Retainage," Management Science, INFORMS, vol. 69(6), pages 3492-3515, June.
    10. Roman M. Sheremeta, 2014. "Behavioral Dimensions of Contests," Working Papers 14-14, Chapman University, Economic Science Institute.
    11. Xu, Hongyan & Liu, Xiaomin & Huang, He, 2023. "Information sharing and order allocation rule in dual-sourcing," Omega, Elsevier, vol. 114(C).
    12. Kimbrough, Erik O. & Sheremeta, Roman M. & Shields, Timothy W., 2014. "When parity promotes peace: Resolving conflict between asymmetric agents," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 96-108.
    13. Chen, Jing & Wei, Hang & Xu, Shujun & Zheng, Chaonan, 2023. "The value of product recall insurance in a price competition with financially constrained suppliers," European Journal of Operational Research, Elsevier, vol. 307(3), pages 1161-1176.
    14. Külpmann, Philipp & Kuzmics, Christoph, 2022. "Comparing theories of one-shot play out of treatment," Journal of Economic Theory, Elsevier, vol. 205(C).
    15. Fallucchi, Francesco & Ramalingam, Abhijit & Rockenbach, Bettina & Waligora, Marcin, 2021. "Inequality and competitive effort: The roles of asymmetric resources, opportunity and outcomes," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 81-96.
    16. Li, Yan & Chen, Yefen & Shou, Biying & Zhao, Xiaobo, 2019. "Oligopolistic quantity competition with bounded rationality and social comparison," International Journal of Production Economics, Elsevier, vol. 211(C), pages 180-196.
    17. repec:elg:eechap:15325_10 is not listed on IDEAS
    18. Eirini Spiliotopoulou & Karen Donohue & Mustafa Çagri Gürbüz, 2022. "Ordering Behavior and the Impact of Allocation Mechanisms in an Integrated Distribution System," Production and Operations Management, Production and Operations Management Society, vol. 31(2), pages 422-441, February.
    19. Dieter Balkenborg & Rosemarie Nagel, 2016. "An Experiment on Forward vs. Backward Induction: How Fairness and Level k Reasoning Matter," German Economic Review, Verein für Socialpolitik, vol. 17(3), pages 378-408, August.
    20. Quement, Mark T. Le & Marcin, Isabel, 2020. "Communication and voting in heterogeneous committees: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 449-468.
    21. Stefan Kohler & European University Institute, 2006. "Inequality Aversion and Stochastic Decision-making: Experimental Evidence from Zimbabwean Villages after Land Reform," Economics Series Working Papers GPRG-WPS-061, University of Oxford, Department of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:ijogbc:v:17:y:2022:i:2:d:10.1007_s42943-021-00039-3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.