The Value of Response Time Information in Supply Chain Bargaining

Abstract

Problem definition: We analyzed the value of response time information in supply chain bargaining and how the transparency of response times affects bargaining dynamics and outcomes. Academic/practical relevance: The research on supply chain bargaining has focused on agents’ choices, whereas the value of process data, such as response times, has received limited attention. The process data underlying a decision can contain valuable information about the agents’ preference. Methodology: We conducted two laboratory experiments with multiround bargaining between a supplier and a retailer, where the supplier had private information about production costs. The retailer proposed wholesale prices to the supplier, and the supplier decided whether to reject or accept them. The experiments were composed of treatments with response time information (RT-Treatments) and those without response time information (noRT-Treatments). Suppliers’ response times were transparent to retailers in the RT-Treatment but were not transparent to those in the noRT-Treatment. Results: We found that suppliers’ response times could indicate their preference strengths regarding retailers’ proposals. In the RT-Treatment, retailers could use suppliers’ response times to their advantage. Compared with those in the noRT-Treatment, retailers in the RT-Treatment made lower initial proposals. The final wholesale prices in agreements were also lower in this treatment, resulting in higher average retailer and channel profits but lower supplier profits. Managerial implications: We demonstrated that response time information in supply chain bargaining revealed bargainers’ preferences and affected bargaining dynamics and outcomes. Bargainers could use their partners’ response times to improve their bargaining outcomes.