IE Seminar: “Behavioral Implications of Bilateral Relationships on Supply Chain Contracting”, Alper Nakkas, 2:00PM May 23 (EN)

Speaker: Alper Nakkas, University of Texas at Arlington

Date & Time: May 23, 2022, Monday 14:00

Place: EA-409

Title: Behavioral Implications of Bilateral Relationships on Supply Chain Contracting

Abstract: This paper investigates the impact of bilateral relationships on procurement and competition incentives in a supply chain environment from a behavioral perspective. We focus on a two-retailer-two-supplier market where retailers negotiate supply procurement contracts with their potential suppliers. In our model, potential trade partners are determined by a bilateral relationship network, which is a bipartite graph where nodes represents firms and links represents bilateral relationship between firms, and not every downstream retailer has links with every upstream supplier. We first derive the bargaining equilibrium outcome as theoretical benchmark and then conduct a laboratory experiment to confirm the results from theoretical benchmark. Our experimental data suggests systematic deviations from the theoretical benchmark and reveal behavioral regularities on contracting behavior. In particular, we show that firms with more (less) potential partners and/or higher (lower) perceived values tend to earn more (less) than theoretical benchmark. We develop a new behavioral theory, referred to as desperateness model, where a firm’s unfavorable bargaining position inflicts additional distress to the firm. This additional stress amplifies the bargaining incentives of firms in such a way that the firms with favorable bargaining positions can take advantage of the desperateness of firms with unfavorable positions to extract additional profit. We demonstrate that our desperateness theory explains and predicts the firms’ supply contract bargaining behavior well.

Bio: Dr. Alper Nakkas is Assistant Professor of Operations Management at the University of Texas at Arlington, USA. He received his PhD in Economics from Vanderbilt University, USA. Before joining the University of Texas at Arlington, he hold faculty positions at the NOVA School of Management (Portugal) and SKK Graduate School of Business (South Korea) and visiting faculty positions at the MIT Sloan School of Management and McGill University. Dr. Nakkas’ specialization is on retail operations and supply chain management.