We study a supply chain setup in which a buyer has private end customer demand information that she can share with the supplier. The demand information is relevant to the supplier's capacity decision. We address the question of whether the supplier benefits from installing nonlinear capacity reservation contracts rather than wholesale price contracts. We contribute to the literature by providing the first internally valid comparison of both contracts with human decision makers. We setup an experimental study with four treatments (both contracts as well as different supplier margins). From a supplier's perspective, we observe that the capacity reservation contract significantly outperforms the wholesale price contract; however, the supplier's benefit from using capacity reservation is much higher under low margins than under high margins. Regarding supply chain performance, the positive effect for the supplier exceeds the negative effect for the buyer in the low margin setting, while the two effects neutralize each other in the high margin setting. We identify behavioral factors explaining deviations from the theoretical predictions. In particular, we observe naïve anchoring and trust as strong behavioral drivers common to both contract types. Even though the complexity of the nonlinear contract results in weaker performance than that predicted by theory, our study reveals that suppliers can still benefit from installing them; thus, providing important managerial implications for the choice of the contract type.

The use of screening contracts is a common approach to solve supply chain coordination problems under asymmetric information. One main assumption in this context is that managers without specific incentives would rather use their private information strategically than reveal it truthfully. This harms supply chain performance. This study investigates the impact of information sharing in a principal‐agent setting that is typical for many supply chain transactions. We conduct a laboratory experiment to test whether information sharing has an influence on supply chain coordination. We find that information sharing within the supply chain has two positive effects. First, information sharing reduces the inefficiencies resulting from information deficits if there is a certain amount of trust in the supply chain. Second, communication can limit out‐of‐equilibrium behavior with a small impact on the firm's own payoff, but a large impact on the supply chain partner. Furthermore, we find that both effects are amplified when communication takes place in an environment that allows the less informed supply chain party to punish or to reward the better informed party. Although our extended mechanisms substantially enhance the poor performance of the theoretically optimal coordination contract menu, we find no mechanism that implements supply chain performance superior to the theoretically predicted second‐best level.

In laboratory experiments, we compare the performance of short‐term and long‐term contracts in a two‐period supplier–buyer dyad with asymmetric cost information. We find that buyers tend to reject offers if the payoff inequality increases from one period to the next. We coin this dynamic form of inequity aversion as “ratcheting aversion.” We show that under short‐term contracting, the buyer's ratcheting aversion limits the supplier's leeway to exploit information revelation in earlier periods because suppliers fear contract rejections in later periods. As a result, the suppliers' empirical benefit of offering long‐term contracts over short‐term contracts is significantly larger than theory predicts. Furthermore, long‐term contracts enable supply chain partners to achieve less volatile supply chain performance than short‐term contracts because the buyers' ratcheting aversion leads to more contract rejections under short‐term contracting. While normative theory predicts that suppliers should include all future informational rents of the buyers in the first‐period offer, thereby creating large payoff differences between periods, we show that it can be behaviorally optimal for the supplier to make offers that lead to more equitable payoffs between periods.

Using laboratory experiments, we study how communication media affect cooperation in a supply chain when the buyer has private information about the end‐customer demand. We show that coordinating contracts (quantity discount) combined with efficient means to electronically share private information (one‐way, pre‐defined text message) result in almost efficient outcomes, but only if verbal communication takes place before the actual contracting stage. Content analysis shows that verbal communication is especially effective in establishing trust and trustworthiness when players talk about reciprocal strategies and it is more so when the buyer clearly expresses guilt from lying. Furthermore, the clarification of the mutual benefits of information sharing moves the buyer to truthfulness. Finally, we show that our results are not due to a reputation building mechanism of repeated interaction.

Based on a serial supply chain model with two periods and price‐sensitive demand, we present the first experimental test of the effect of strategic inventories on supply chain performance. In theory, if holding costs are sufficiently low, the buyer builds up a strategic inventory (even if no operational reasons for stock‐holding exist) to limit the supplier's market power, and to increase the own profit share. As it turns out, this enhances the overall supply chain performance. The supplier anticipates the effect of the strategic inventory and differentiates prices to capture a part of the increased supply chain profits. Our results show that the positive effects of strategic inventories are even more pronounced than theoretically predicted, because strategic inventories empower buyers by shifting the perception of the fair split. Overall, strategic inventories have a double positive effect, a strategic and a behavioral, both reducing the average wholesale prices and dampening the double marginalization effect. The latter effect leads to more equitable payoffs.

Carbon emissions reduction initiatives have received considerable attention at the corporate level. Companies such as Daimler, Apple, and Amazon have publicly declared their goal of becoming carbon neutral or “net zero” in a near future. They are responding to a growing demand for sustainable products and services. Companies have a variety of options for carbon emission reductions available to them, including internal reductions such as adopting renewable energy as well as buying carbon offsets. This raises the question of whether consumers perceive the different types of carbon emission reductions as equivalent, or whether they favor the implementation of internal measures. We investigate this issue empirically through surveys and incentive‐compatible discrete choice experiments. We find clear consumer preferences and willingness to pay for companies to reduce their carbon footprint when companies internally reduce their controllable emissions rather than buying carbon offsets for these emissions, and it is especially true for eco‐conscious consumers. Consumers place roughly the same value, however, on internal reductions in controllable emissions and buying offsets for the same amount of uncontrollable emissions.

Recent research indicates that consumers hold significant concerns about the quality of remanufactured products. To better understand this phenomenon, this manuscript combines surveys and experimental studies to identify the antecedents of perceived quality—in the form of perceived risk of functionality and cosmetic defects—and their significant impact on consumers' willingness to pay (wtp) for remanufactured electronics products. The study also controls for alternative explanations for wtp suggested in the literature, such as consumers' wtp for new products, environmental beliefs, disgust aversion toward used products, brand perceptions, risk aversion, and various demographic traits. Importantly, the study empirically estimates the magnitude and distribution of discount factors for remanufactured electronics products—the ratio between wtp for a remanufactured product and wtp for a corresponding new product—among consumers. Finally, the manuscript analytically compares a monopolist's decision to include remanufactured products in its portfolio under both the empirically derived discount factor distributions and the classical linear demand model, which assumes constant discount factors. Interestingly, the classical linear demand model remains reasonably robust for high‐level insights, such as the presence of cannibalization and market expansion effects. However, the analytical model that uses the empirically‐derived distributions of discount factors demonstrates significantly higher profitability than predicted by the classical linear model. This fundamental link between risk perceptions, wtp for remanufactured products, and profitability provides new insights on how to manage demand and product pricing in closed‐loop supply chains.