Recent studies have found that decision makers do not perform as expected when they receive much, and frequent, information, that is, retailers order less than the optimal order quantity, assuming rationality, when they get frequent sale feedback. Loss aversion is one of the theories used to explain such behavioral phenomenon. However, the loss aversion model cannot explain why there is a gap between the ordering behaviors in retailing context with buyback and revenue sharing contracts. We propose an alternative model of value discounting to account for such a gap and explain why there is an information effect on the ordering behaviors. We test the theory with an experiment and find that the retailers’ behaviors when facing two contracts and two information schemes match with the predictions of value discounting theory.
All Science Journal Classification (ASJC) codes
- Business and International Management
- Strategy and Management