An Experimental Investigation of Pull Contracts
نویسنده
چکیده
We conduct an investigation of supply chain contracts where a supplier incurs the holding cost of inventory and uses it to directly satisfy a retailer's demand. These contracts, known as " pull " contracts, have increased in popularity in practice, but have yet to be studied empirically. We investigate three pull contracts in a controlled laboratory environment: a wholesale price contract and two coordinating contracts. The first primary result of our paper is that the theoretical benefit of the two coordinating contracts over the wholesale price contract does not perfectly translate into practice. Instead, subjects set wholesale prices too high and the second contract parameter too low in the coordinating contracts. To explain this behavior we consider a model of risk aversion and a model of anticipated regret. We fit our data through parameter estimation techniques and find that a model of anticipated regret fits our data well on both an aggregate and individual level. We then explore three different experimental treatments to understand whether subjects' decisions were indeed driven by regret, or whether they simply required additional feedback and support. After running all three additional treatments, we find the same behavior as in the original treatments, thus supporting the notion that retailers act regretful in coordinating contracts.
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