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dc.contributor.authorTuncel, O
dc.contributor.authorTaneri, N
dc.contributor.authorHasija, S
dc.date.accessioned2021-11-25T00:30:46Z
dc.date.available2021-11-25T00:30:46Z
dc.date.issued2022-07
dc.identifier.issn1523-4614
dc.identifier.urihttps://www.repository.cam.ac.uk/handle/1810/331063
dc.description.abstractProblem Definition: In theory, all coordinating contracts are equivalent, however, the minimum order quantity (MOQ) contract is observed to be more popular in practice. We seek to understand whether decisionmakers as suppliers can perform better with the MOQ contract and, if so, why? We also study whether MOQ is indeed the preferred contract when subjects are allowed to choose among coordinating contracts. Academic/Practical Relevance: The behavioral operations management literature has established a tradeoff between complex coordinating and simple non-coordinating contracts. This paper fills a gap in the literature by studying whether and how the coordinating MOQ contract attenuates this tradeoff. Methodology: First, we test whether subjects in the role of suppliers given only a single contract type can optimize its parameters. Second, we introduce treatments where the coordinating contracts subject to demand risk are hedged such that risk is eliminated. Third, we repeat two of the initial set of treatments with a cognitive load survey and introduce single-variable versions of those treatments to reduce cognitive burden. Fourth, we introduce a novel experimental design where, in each period, subjects choose both the type of contract to offer and the parameters of that contract. Results: We find that (i) subjects perform significantly better with the MOQ contract compared to other coordinating contracts; (ii) this can be attributed to the risk inherent in and cognitive burden induced by those contracts; and, (iii) subjects choose the MOQ contract more frequently over theoretically equivalent coordinating contracts. Managerial Implications: We show that the tradeoff between efficiency and complexity can be mitigated by simpler yet efficient contracts. Hence, there is considerable benefit to identifying contractual mechanisms that ameliorate the adverse effects of complexity. This explains the prevalence of MOQ terms in supply contracts.
dc.publisherInstitute for Operations Research and Management Sciences
dc.rightsAll rights reserved
dc.rights.urihttp://www.rioxx.net/licenses/all-rights-reserved
dc.titleWhy are minimum order quantity contracts popular in practice? A behavioral investigation
dc.typeArticle
prism.publicationNameManufacturing and Service Operations Management
dc.identifier.doi10.17863/CAM.78508
dcterms.dateAccepted2021-05-22
rioxxterms.versionofrecord10.1287/msom.2021.1061
rioxxterms.versionAM
rioxxterms.licenseref.urihttp://www.rioxx.net/licenses/all-rights-reserved
rioxxterms.licenseref.startdate2021-05-22
dc.identifier.eissn1526-5498
rioxxterms.typeJournal Article/Review
cam.issuedOnline2022-02-10
cam.orpheus.successTue Apr 12 08:22:24 BST 2022 - Embargo updated
cam.orpheus.counter4
rioxxterms.freetoread.startdate2022-02-10


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