While suppliers are often an excellent source of product innovation for buyers, their propensity to undertake or continue a product development project can be elusive. This study examines how characteristics of the innovation project, including the type of project revenue, type of cost uncertainty, and the contract frame, influence the decision to accept, and subsequently continue, an innovation project. Through a series of controlled behavioral experiments, we find that acceptance rates increase when projects are characterized by a low real options value or an entirely new (vs. replacement) revenue stream. While these factors have less influence on the supplier's decision to continue the project, once accepted, continuation rates do increase if acceptance and continuation decisions are made by the same person. We also find that using a reward (vs. penalty) frame for sustaining supplier engagements significantly increases acceptance rates.
Bibliographical noteFunding Information:
The authors thank the editors and reviewers for their many helpful suggestions and comments, which greatly improved this study. This study also benefitted immensely from the feedback of seminar participants at Iowa State University, University of Wisconsin-Madison, Arizona State University, Indiana University, University of Minnesota, Technical University Dortmund, and Cornell University. Funding was provided by a Dean’s Grant from the Carlson School of Management.
© 2017 Production and Operations Management Society
- behavioral operations
- buyer–supplier relationship
- supplier innovation
- supply chain contracts