Tingting Yan accepted for publication in International Journal of Operations and Production Management
Mike Ilitch School of Business Professor of Global Supply Chain Management Tingting Yan has been accepted for publication in the International Journal of Operations and Production Management, which publishes research with the potential to significantly advance the field of operations and supply chain management theoretically and practically.
The article, “Revenue sharing bids of a loss-averse supplier for a new product development contract: A multi-method investigation,” was co-authored by Hubert Pun (Western University) and Dina Ribbink (Oregon State University).
When developing a new product, a buying firm solicits revenue sharing bids from two competing suppliers. Bidding behaviors of suppliers do not always align with predictions from rational agent models due to task uncertainty and bounded rationality, which could result in non-optimal supplier offers and ultimately hurt buying firm interests. We built an analytical model that considers the impact of supplier technological risk, buyer-supplier coordination cost, and supplier loss aversion on the optimal bid of the supplier. Next, using limited information processing capacity as a theoretic lens, we explore antecedents to the size of a focal supplier’s bidding error, the absolute difference between the actual bid and the optimal bid. We used quantitative lab experimental data to test the hypotheses. (1) Bounded rational bidders often fail to differentiate between relevant and irrelevant competitive information when placing bids, (2) loss aversion of a bidder significantly affects not only levels of bids, particularly for bidders with competitive disadvantages, but also sizes of the bidding error, and (3) competitive information that has clearer performance implications are more influential in reducing sizes of bidding errors. Our results provide a comprehensive view of the bidding behaviors of a bounded rational supplier in an innovation outsourcing context with competition. With our results, managers now have a better understanding of behavioral influencers behind non-optimal supplier bids in an innovation outsourcing context.