Value of screening in procurement mechanism: An experimental study

Zewu Jiang, Wanshan Zhu, Yang Zhang, Xiaobo Zhao and Jinxing Xie

European Journal of Operational Research, 2024, vol. 313, issue 3, 1031-1053

Abstract: Procurement mechanisms are widely employed and recommended for use in supply chain management practices. This study examines a retailer’s decision to design a separating mechanism (as opposed to pooling mechanism) which is applied when buying from a supplier whose production cost information is private. The retailer’s decision is based on the value of screening of the separating mechanism, as it allows the retailer to screen the supplier’s private cost information, whereas the pooling mechanism does not. We conducted a laboratory experiment to investigate the retailer’s decision-making behaviors, the supplier’s decision behaviors, and the value of screening. We found that the observed value of screening is negligible and significantly lower than predicted given a large market size; however, it is substantially higher than predicted given a medium market size. According to the behavioral model analysis, this effect is mainly caused by the supplier’s fairness concerns; the screening increases the supplier’s fairness concern when operating in a large market, but decreases it when operating in a medium sized market. The results imply that a retailer should use a separating mechanism if the screening reduces the supplier’s fairness concern; otherwise, a pooling mechanism suffices.

Keywords: Behavioural OR; Supply chain management; Mechanism design; Fairness; Screening (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S037722172300677X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:313:y:2024:i:3:p:1031-1053

DOI: 10.1016/j.ejor.2023.08.049

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().