To share or withhold? Contract negotiation in buyer–supplier–supplier triads
| Published date | 26 November 2019 |
| DOI | https://doi.org/10.1108/IMDS-07-2019-0374 |
| Pages | 98-127 |
| Date | 26 November 2019 |
| Author | Xu Chen,Xiaojun Wang,Xiaoqiang Zhu,Joseph Amankwah-Amoah |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
To share or withhold?
Contract negotiation in
buyer–supplier–supplier triads
Xu Chen
School of Management and Economics,
University of Electronic Science and Technology of China, Chengdu, China
Xiaojun Wang
Department of Management, University of Bristol, Bristol, UK
Xiaoqiang Zhu
School of Management and Economics,
University of Electronic Science and Technology of China, Chengdu, China, and
Joseph Amankwah-Amoah
Kent Business School, University of Kent, Canterbury, UK
Abstract
Purpose –This paper seeks to fill the literature gap that lacks of exploring negotiation strategy with
competing partners under asymmetric production-cost information. The purpose of this paper is to examine
firms’optimal contract negotiation strategies in buyer–supplier–supplier triads where there are concurrent
negotiations between the retailer and two competing manufacturers.
Design/methodology/approach –The authors consider a two-echelon supply chain, in which the retailer
has the option of segmented or unified negotiation policy, whereas the two competing manufacturers can
withhold or share production cost information in the negotiation. Based on game theory, the authors derive
the manufacturers’optimal wholesale prices and the retailer’s optimal retail prices with eight possible
scenarios. Optimal strategic choices and operational decisions are then explored through the comparative
analysis of equilibriums of eight possible scenarios.
Findings –The authors find that the retailer will adopt different negotiation strategies depending on
manufacturers’decisions on sharing or withholding their production-cost information. When both
manufacturers share their production-cost information, the retailer will adopt a unified negotiation policy.
The high-efficiency manufacturer should adopt the same information-sharing strategy as the low-efficiency
manufacturer in order to gain more profit.
Originality/value –The modelling helps to bring further clarity in supply chain contract negotiation by
offering a conceptual framework to enhance our understanding of the effects of information-sharing strategy
and negotiation policy in the negotiation process form the perspectives of all engaging parties. Managerial
insights derived from the research will enable retailers and manufacturers to make informed and better
strategic and operational decisions to improve market competitiveness.
Keywords Asymmetric information, Game theory, Buyer–supplier–supplier triads, Negotiation policy
Paper type Research paper
1. Introduction
Over the past few decades, there has been a growing body of research on negotiation
strategy and the effects of symmetric and asymmetric information in supply chain
management (Dwyer and Walker, 1981; Feng and Lu, 2013; Gurnani and Shi, 2006; Mishra
and Prasad, 2005). The stream of research on supply chain contract negotiation strategy has
demonstrated that negotiation power enables stronger firms to compel other firms to accept
their terms of trade and even win concessions (Emerson, 1962; Crook and Combs, 2007;
Industrial Management & Data
Systems
Vol. 120 No. 1, 2020
pp. 98-127
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-07-2019-0374
Received 10 July 2019
Revised 21 September 2019
Accepted 22 October 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
The first author is partially supported by National Natural Science Foundation of China (Nos 71432003,
91646109), and Youth Team Program for Technology Innovation of Sichuan Province (No. 2016TD0013).
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IMDS
120,1
El Ouardighi and Kogan, 2013; Maglaras et al., 2015). Although scholars have recognised for
some time that exchange relationships are often characterised by an unequal access to
information and power distribution between the parties (Dwyer, 1984; Shang et al., 2016;
Luo et al., 2017), our understanding of negotiation under asymmetric information conditions
remains limited. Indeed, in spite of the growing recognition of the importance of negotiation
power and access to information in supply chain interactions (Frazier et al., 2009; Li et al.,
2019), scholars have failed to offer a comprehensive model to explain negotiation strategy
with competing partners under asymmetric production-cost information.
Our study seeks to fill this gap in our understanding by examining firms’optimal
contract negotiation strategies in buyer–supplier–supplier triads. We explore the issue in
the context of a retailer and manufacturers’interactions where there are concurrent
negotiations between the retailer and two competing manufacturers. Under this setting, the
retailer is the dominant player in the supply chain, which becomes more and more common.
The Stackelberg games are widely used to model the supply chain and bestow unequal
negotiation powers on players (Kim and Kwak, 2007; Nagarajan and Bassok, 2008; Feng and
Lu, 2013; Xiao et al., 2015). The retailer, as the Stackelberg leader, has two normal
negotiation policies which are used to negotiate wholesale prices with the manufacturers:
segmented negotiation policy and unified negotiation policy. In a segmented negotiation
policy, the retailer negotiates with manufacturers separately on the basis of their production
costs and the two manufacturers set different wholesale prices to the retailer. In a unified
negotiation policy, the retailer negotiates with both manufacturers simultaneously
according to their production costs and the two manufacturers set a single wholesale
price to the retailer.
Furthermore, manufacturers have private information regarding their own production
cost. They can choose to withhold or share their production-cost information with the
retailer in the contract negotiation. From the manufacturers’perspective, withholding
the production-cost information may enable them to gain higher profit margin in the
negotiation of wholesale prices with the retailer. In contrast, sharing production-cost
information with the retailer will help manufacturers to secure wholesale prices that
protect profit gain but with lower margins. In addition, a presence of a competing
manufacturer brings further complexity to the problem. To help firms make the
optimal strategic and operational decisions in the contract negotiations in the context of
buyer–supplier–supplier triads, it is essential to have a comprehensive understanding
of how the retailer’s negotiation policy (segmented negotiation policy vs unified
negotiation policy) and the manufacturers’production-cost information strategy
(withholding vs sharing) affect their financial performances.
The rest of this paper is organised as follows. In the next section, we present a
comprehensive overview of the literature on negotiation strategy and asymmetric
information. This is then followed by Section 3 which explicates the contours of our
proposed unified model and assumptions and derives the manufacturers’optimal wholesale
prices and the retailer’s optimal retail prices. Based on these results, the penultimate section
discusses the choice of retailer’s negotiation policies and the choices of the manufacturers’
production-cost information-sharing strategies in Section 4. The section also highlights the
effect of manufacturers’production efficiency on their decisions and performance. The final
section concludes by outlining the research contributions, managerial implications and a
number of promising avenues for future research.
2. Literature review
Our study is mainly related to two streams of the literature: supply chain contract
negotiation and power in supply chain contract negotiation. Now we discuss how our
research relates to these two streams of the literature.
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