Information distortion in a supply chain: the bullwhip effect
Management Science - Special issue on frontier research in manufacturing and logistics
The Effect of Collaborative Forecasting on Supply Chain Performance
Management Science
The Value of Information Sharing in a Two-Level Supply Chain
Management Science
A Time-Series Framework for Supply-Chain Inventory Management
Operations Research
Measuring Imputed Cost in the Semiconductor Equipment Supply Chain
Management Science
Trust Building Among Strangers
Management Science
Simple Relational Contracts to Motivate Capacity Investment: Price Only vs. Price and Quantity
Manufacturing & Service Operations Management
Fairness and Channel Coordination
Management Science
Contracting and Information Sharing Under Supply Chain Competition
Management Science
Confidentiality and Information Sharing in Supply Chain Coordination
Management Science
Manufacturing & Service Operations Management
Contracting in Supply Chains: A Laboratory Investigation
Management Science
The Value of Collaborative Forecasting in Supply Chains
Manufacturing & Service Operations Management
Revenue Sharing and Information Leakage in a Supply Chain
Management Science
Biased Judgment in Censored Environments
Management Science
Engaging Supply Chains in Climate Change
Manufacturing & Service Operations Management
| Hi-index | 0.01 |
This paper investigates the capacity investment decision of a supplier who solicits private forecast information from a manufacturer. To ensure abundant supply, the manufacturer has an incentive to inflate her forecast in a costless, nonbinding, and nonverifiable type of communication known as “cheap talk.” According to standard game theory, parties do not cooperate and the only equilibrium is uninformative---the manufacturer's report is independent of her forecast and the supplier does not use the report to determine capacity. However, we observe in controlled laboratory experiments that parties cooperate even in the absence of reputation-building mechanisms and complex contracts. We argue that the underlying reason for cooperation is trust and trustworthiness. The extant literature on forecast sharing and supply chain coordination implicitly assumes that supply chain members either absolutely trust each other and cooperate when sharing forecast information, or do not trust each other at all. Contrary to this all-or-nothing view, we determine that a continuum exists between these two extremes. In addition, we determine (i) when trust is important in forecast information sharing, (ii) how trust is affected by changes in the supply chain environment, and (iii) how trust affects related operational decisions. To explain and better understand the observed behavioral regularities, we also develop an analytical model of trust to incorporate both pecuniary and nonpecuniary incentives in the game-theoretic analysis of cheap-talk forecast communication. The model identifies and quantifies how trust and trustworthiness induce effective cheap-talk forecast sharing under the wholesale price contract. We also determine the impact of repeated interactions and information feedback on trust and cooperation in forecast sharing. We conclude with a discussion on the implications of our results for developing effective forecast management policies. This paper was accepted by Ananth Iyer, operations and supply chain management.