Asymmetric information in subcontracting decisions: the effects of the first mover advantage
DOI:
https://doi.org/10.7433/s110.2019.04Keywords:
information asymmetry; subcontracting; manufacturer; supplier; signalling; screeningAbstract
Purpose of the paper: The article analyses, in an adverse selection set-up, the effects of the first mover advantage in subcontracting decision between a manufacturer and a supplier in the situation of asymmetric information.
Methodology: The study proposes a game theory model to analyze a supply chain consisting of a single risk-neutral supplier and a single risk-neutral manufacturer facing a contract definition problem.
Results: The model suggests the strategies to obtain a more convenient arrangement for the manufacturer both in screening and signaling framework.
Research limitations: The empirical examination with real-life data needs to be expanded and performed in a cross-sector context.
Practical implications: The model helps the manufacturer in designing the appropriate arrangement for subcontracting relations and extracting hidden information from the suppliers.
Originality of the paper: Our approach provides a comprehensive quantitative analysis of the effects of the first mover advantage in manufacturer-supplier relationships.
References
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ANTELO M. (2009), The dominance of fee licensing contracts under asymmetric information and signalling, Working Paper E2009/08, CentrA
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BANKS J. (1991), Signalling Games in political Sciences, Harwood Publishers, Chur, Switzerland.
BEN-SHAHAR D., FELDMAN D. (2003), “Signaling-screening equilibrium in the Mortgage Market”, Journal of Real Estate Finance and Economics, vol. 26, n. 2/3, pp. 157-178.
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ÇAKANYILDIRIM M., FENG Q., GAN X., SETHI S.P. (2012), “Contracting and coordination under asymmetric production cost information”, Production and Operations Management, vol. 21, n. 2, pp. 345-360.
CERRUTI C., DELBUFALO E., (2009), “International sourcing effectiveness in the fashion industry: the experience of Italian industrial districts”, International Journal of Globalisation and Small Business, vol. 3, n. 4, pp. 427-440.
CHEN Z.L., LI C.L. (2008), “Scheduling with subcontracting options”, IIE Transactions, vol. 40, n. 2, pp. 1171-1184
CORBETT C., TANG C. (1999), “Designing supply contracts: Contract type and information asymmetry”, Tayur R.G., Magazine S.M., eds. Quantitative Models for Supply Chain Management, Kluwer Academic Publishers, Boston.
DAY J.S. (1956), Subcontracting policy in the airframe industry, Graduate School of Business Administration, Harvard University, Boston, MA.
HA A.Y. (2001), “Supplier-buyer contracting: Asymmetric cost information and the cut-off level policy for buyer participation”, Naval Res. Logist. vol.1, n. 48, pp. 41-64.
IOANNOU L. (1995), “Subcontracting’s subtle subversions”, International Business, June 1995, pp. 20-22.
JULLIEN B. ( 2000), “Participation constraints in adverse selection models”, J. Econ. Theory, vol.2, n. 93, pp. 1-47.
KÜBLER D., MÜLLER W., NORMANN H.T. (2008), “Job-market signalling and screening: an experimental comparison”, Games and Economic Behavior, vol.1, n. 64, pp. 219-236.
LUTZE H.S., ÖZER Ö. (2008), “Promised leadtime contracts and renegotiation incentives under asymmetric information”, Oper. Res., vol. 56, n. 8, pp. 898-915.
ÖZER Ö., RAZ G. (2011), “Supply chain sourcing under asymmetric information”, Prod. Oper. Manag., vol. 20, n. 1, pp. 92-115.
PITTAWAY L., ROBERTSON M., MUNIR K., DENYER D., NEELY A. (2004), “Networking and innovation: a systematic review of the evidence”, International Journal of Management Reviews, vol. 5/6, n. 3-4, pp. 137-168.
POPPO L., ZHOU K.Z., ZENGER T.R., (2008), “Examining the conditional limits of relational governance: specialized assets, performance ambiguity, and long-standing ties”, Journal of Management Studies, vol. 45, n. 7, pp. 1195-1216.
PRAHALAD C., HAMEL G. (1990), “The core competence of the corporation”, Harvard Business Review, vol. 68, n. 3, pp. 79-91.
QUINN J.B. (1999), “Strategic outsourcing: Leveraging knowledge capabilities”, Sloan Management Review, vol. 40, n. 4, pp. 9-22.
RASMUSSENN E. (2006), Games and Information. An Introduction to Game Theory (4th Revised edition), Blackwell Publishing Ltd, Oxford, UK.
ROTHSCHILD M., STIGLITZ J. (1976), “Equilibrium in competitive insurance market: an essay in the economics of imperfect information”, Quarterly Journal of Economics, vol.4, n. 90, pp. 629-649.
SPENCE A.M. (1973), Market signalling: information transfer in hiring and related processes, Cambridge, MA: Harvard University Press.
STATEN M., UMBECK J. (1986), “A Study of Signaling Behavior in Occupational Disease Claims”, Journal of Law and Economics, vol. 29, n. 2, pp. 263-286.
TAYUR S., GANESHAN R., MAGAZINE M. (1999), Quantitative models for Supply Chain Management, Kluwer Academic Publishers
TRAN Y. (2010), “Generating stylistic innovation: a process perspective”, Industry and Innovation, vol. 17, n. 2, pp. 131-161.
ANTELO M. (2009), The dominance of fee licensing contracts under asymmetric information and signalling, Working Paper E2009/08, CentrA
ARROW K.J. (1963), Social Choice and Individual Values, Yale University Press, New Haven, CT.
BANKS J. (1991), Signalling Games in political Sciences, Harwood Publishers, Chur, Switzerland.
BEN-SHAHAR D., FELDMAN D. (2003), “Signaling-screening equilibrium in the Mortgage Market”, Journal of Real Estate Finance and Economics, vol. 26, n. 2/3, pp. 157-178.
BIONG H. (2012), ”Choice of subcontractor in markets with asymmetric information: reputation and price effects”, Journal of Business and Industrial Marketing, vol. 28, n. 1, pp. 60 - 71
CACHON G. (2005), “Supply chain coordination with contracts”, Graves S. T. Kok, eds. Handbooks in OR. North Holland, Amsterdam, pp. 229-340.
ÇAKANYILDIRIM M., FENG Q., GAN X., SETHI S.P. (2012), “Contracting and coordination under asymmetric production cost information”, Production and Operations Management, vol. 21, n. 2, pp. 345-360.
CERRUTI C., DELBUFALO E., (2009), “International sourcing effectiveness in the fashion industry: the experience of Italian industrial districts”, International Journal of Globalisation and Small Business, vol. 3, n. 4, pp. 427-440.
CHEN Z.L., LI C.L. (2008), “Scheduling with subcontracting options”, IIE Transactions, vol. 40, n. 2, pp. 1171-1184
CORBETT C., TANG C. (1999), “Designing supply contracts: Contract type and information asymmetry”, Tayur R.G., Magazine S.M., eds. Quantitative Models for Supply Chain Management, Kluwer Academic Publishers, Boston.
DAY J.S. (1956), Subcontracting policy in the airframe industry, Graduate School of Business Administration, Harvard University, Boston, MA.
HA A.Y. (2001), “Supplier-buyer contracting: Asymmetric cost information and the cut-off level policy for buyer participation”, Naval Res. Logist. vol.1, n. 48, pp. 41-64.
IOANNOU L. (1995), “Subcontracting’s subtle subversions”, International Business, June 1995, pp. 20-22.
JULLIEN B. ( 2000), “Participation constraints in adverse selection models”, J. Econ. Theory, vol.2, n. 93, pp. 1-47.
KÜBLER D., MÜLLER W., NORMANN H.T. (2008), “Job-market signalling and screening: an experimental comparison”, Games and Economic Behavior, vol.1, n. 64, pp. 219-236.
LUTZE H.S., ÖZER Ö. (2008), “Promised leadtime contracts and renegotiation incentives under asymmetric information”, Oper. Res., vol. 56, n. 8, pp. 898-915.
ÖZER Ö., RAZ G. (2011), “Supply chain sourcing under asymmetric information”, Prod. Oper. Manag., vol. 20, n. 1, pp. 92-115.
PITTAWAY L., ROBERTSON M., MUNIR K., DENYER D., NEELY A. (2004), “Networking and innovation: a systematic review of the evidence”, International Journal of Management Reviews, vol. 5/6, n. 3-4, pp. 137-168.
POPPO L., ZHOU K.Z., ZENGER T.R., (2008), “Examining the conditional limits of relational governance: specialized assets, performance ambiguity, and long-standing ties”, Journal of Management Studies, vol. 45, n. 7, pp. 1195-1216.
PRAHALAD C., HAMEL G. (1990), “The core competence of the corporation”, Harvard Business Review, vol. 68, n. 3, pp. 79-91.
QUINN J.B. (1999), “Strategic outsourcing: Leveraging knowledge capabilities”, Sloan Management Review, vol. 40, n. 4, pp. 9-22.
RASMUSSENN E. (2006), Games and Information. An Introduction to Game Theory (4th Revised edition), Blackwell Publishing Ltd, Oxford, UK.
ROTHSCHILD M., STIGLITZ J. (1976), “Equilibrium in competitive insurance market: an essay in the economics of imperfect information”, Quarterly Journal of Economics, vol.4, n. 90, pp. 629-649.
SPENCE A.M. (1973), Market signalling: information transfer in hiring and related processes, Cambridge, MA: Harvard University Press.
STATEN M., UMBECK J. (1986), “A Study of Signaling Behavior in Occupational Disease Claims”, Journal of Law and Economics, vol. 29, n. 2, pp. 263-286.
TAYUR S., GANESHAN R., MAGAZINE M. (1999), Quantitative models for Supply Chain Management, Kluwer Academic Publishers
TRAN Y. (2010), “Generating stylistic innovation: a process perspective”, Industry and Innovation, vol. 17, n. 2, pp. 131-161.
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2019-12-20
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