Bargaining Power in Supply Chain Collaboration

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Bargaining is an essential part for collaboration in supply chain. Theoretical research within the framework of the Stackelberg game has provided equilibrium solutions, however, it has failed in terms of considering human interactions during bargaining. The other stream of research within the negotiation framework proposes that collaboration is based on bargaining power, however, it cannot quantitatively identify negotiators' actual power status. The power components include potential power, perceived power and realized power. Behavioral economics suggest that human managers cannot possess a consistent power status between the three components. To make the theory more practical in the real world, we want to investigate the actual power status in selected supply chain collaboration scenarios with behavioral research methods.The first selected scenario is contracts with demand promotion. The Stackelberg game framework predicts that a supplier, not a retailer, always extracts all the profit, while the negotiation framework suggests that the player who invests in the demand promotion effort has the power to gain more profit. By conducting laboratory experiments, we expect to find the empirical power status of the supplier and retailer. Based on the power status, we suggest a better contract protocol for collaboration with demand promotion, in terms of both channel efficiency and self-interest. The second scenario is contracts with peer competition. The Stackelberg game framework and the negotiation framework still have different predictions in the bargaining output. With laboratory experiments, we can discover which framework can explain human decision data better. We will also go further and analyze the power status of negotiators in order to gain a solid understanding of bargaining power in competition scenarios. The first and second scenarios are two of the most typical components in collaboration practice. It is more common to have multiple components within one scenario. Accordingly, the third scenario combines the first and second scenarios to investigate the bargaining power in contracts with both demand promotion and peer competition. For all three selected scenarios, we will establish theoretical formulations as decision benchmarks and conduct laboratory experiments to collect real decision data. By analyzing the experimental data, we can observe negotiators' actual power status, summarize the factors that influence the actual power status, and establish behavioral models to generate reliable decision predictions.