SBEE Lecture Series: Andrew M. Davis
Ehrlicher Room, 3100 North Quad
The Social, Behavioral and Experimental Economics lecture series is sponsored by the School of Information, the Ross School of Business and the Department of Economics. Speakers from U.S. and international universities present their research at weekly seminars during the 2017-2018 academic year.
Multidimensional Bargaining and Inventory Risk in Supply Chains: An Experimental Study
We study the impact of multidimensional bargaining and the location of inventory risk on the performance of a two-stage supply chain. We conduct a controlled human-subjects experiment where a retailer and supplier either interact through ultimatum offers or dynamically bargain over contract terms, including a wholesale price and, potentially, an order quantity. We also manipulate whether the risk associated with unsold inventory lies with the retailer or the supplier or is endogenously determined in the bargaining process. One key insight is that supply chain efficiency is significantly higher when the order quantity is included in the negotiation and that, contrary to the normative theory, this leads to a Pareto improvement whereby both the supplier and retailer earn higher profits. A second important result, also counter to the normative theory, is that the party incurring the cost of unsold inventory always earns a lower profit than their counterpart, regardless of the bargaining environment or inventory risk location. To explain these data, we posit that retailers and suppliers are affected by an anchoring bias and demonstrate that it can explain many of our results.
Andrew M. Davis is an assistant professor of operations, technology and information management at Cornell University. Davis’s research focuses on decision making in supply chains. Specifically, he conducts controlled laboratory experiments with human participants to investigate how behavioral factors impact decisions relating to supply chain and operations management. Prior to joining Cornell in 2011, Davis worked for C&S Wholesale Grocers, a $30 billion grocery distributor, in various supply chain roles. He earned a BA in economics from Colgate University, an MBA from the Pennsylvania State University, and a PhD in supply chain management also from the Pennsylvania State University.