Firms increasingly recognize the importance of their upstream suppliers' social responsibility. However, they may fail to heed the unintended negative consequences of their own common practices on the suppliers' social responsibility decision. We consider a setting where both the customer demand and the production cost depend on the supplier's social responsibility level. The supplier has private information about his unit production cost, and the retailer uses an incentive contract, coupled with an audit, to induce truthful reporting of the supplier's cost type. We focus on the impact of cost auditing on the supplier's social responsibility decision. We find that the impact hinges on consumers' response to social responsibility. When demand takes the additive form as a result of the consumer response, the cost information asymmetry does not change the supplier's social responsibility decision, whereas an audit intended to counteract the information asymmetry may cause the supplier to either increase, decrease, or maintain his social responsibility, depending on model parameters. When demand takes the multiplicative form, we find that the information asymmetry causes the supplier to deviate from his first-best solution, but the deviation is limited. The supplier always adjusts his social responsibility level in response to the audit. In cases of upward adjustments, the magnitude is typically insignificant. In cases of downward adjustments, however, the reduction is typically more noticeable. Our findings suggest that a downstream firm's seemingly unrelated common practices may often inadvertently undermine the supplier's social responsibility choice, which sheds light on the reluctance of many suppliers to commit to social responsibility programs.
We focus on the rapid growth of live-streaming selling platforms in which the supplier sells products by cooperating with a livestreamer to stimulate demand. The livestreamer has an information advantage in terms of personal influence level and the supplier needs to design a menu of contracts that would induce the livestreamer to report honestly on the influence level. We characterize the supplier’s optimal contract and analyze how to choose the right livestreamer in the presence of price uncertainty. We find that it is crucial for the supplier to take influence level and reputation risk into account when choosing a livestreamer. We suggest that it is not always better to chase the livestreamer with an influential profile. If the livestreamer fails to deliver the product in an attractive way, the supplier has to make additional efforts and investments to cease the negative impact on the public. However, the reputation crisis can be controlled and offset if the supplier picks a livestreamer with a medium influence level. Further, given that the supplier can utilize sales information collected from the live-streaming channel to improve the demand forecast in a traditional sales channel by cooperating with a livestreamer, a livestreamer with a high influence level is preferred when the price uncertainty is relatively low. Otherwise, the supplier should pick a livestreamer with a medium influence level, as this would hedge the uncertainty in price.
We analyze the influence of bargaining power on the supply chain when the supplier and the livestreamer agree on a revenue-sharing contract and then discuss how the livestreamer’s influence level affects pricing and production decisions with revenue sharing. The analysis suggests that the preferences of the supplier and livestreamer over channel selection are different, and depend on parameters like revenue sharing rate, audience size, and the livestremer’s reputation cost, which is used to build customer relationship and maintain audience size. A livestreamer with an influential profile may refuse the supplier’s revenue-sharing contracts if the portion of revenue cannot cover the reputation cost. Our next step is to examine the supplier’s optimal revenue-sharing contracts in the presence of different types of livestreamers and to investigate the impact of customer trust and loyalty on the livestreamers’ bargaining power.
We observe a new trend where suppliers today are adopting a dual-channel to sell products, i.e., the traditional retail channel and the live-streaming channel. Instead of selling products on a livestreamer’s stream by paying commission fees and revenue sharing, many small individual suppliers are creating their own shopping streams to maintain inventory efficiency, enrich brand loyalty with customer engagement, build customer trust, and improve demand forecasting. To increase the audience size for the live-streaming channel and thus boost demand on the regular channel, small individual suppliers have to sell products at a discount price on the live-streaming channel. Suppliers face a dilemma because of the cannibalization effect between the two channels. Motivated by these observations, we ask the following three research questions:
(i) how does the supplier’s influence level affect regular channel demand?
(ii) what are the supplier’s production and pricing decisions in a dual-channel supply chain?
(iii) what is the impact of the customer trust on the supplier’s behavior?