Dynamic supply chain coordination games with repeated bargaining

Coordination of supply chains may require investments in relationship-specific assets (RSA), information or human resources from all or a subset of the partners. These investments are typically partially non-verifiable, being based on internal resources or opportunity costs. We extend previous work on the topic of coordination of complementary relationship-specific “selfish'' investments by considering a context of repeated single- period bargaining under double asymmetric information and outside options. Our model is a dyad in which a supplier offers a single-price single-period contract for a good to a downstream manufacturer (or retailer) who can accept or turn to some third party before investing in the corresponding RSA. We show results when the supplier uses repeated updating to estimate the manufacturer's investment cost, determining a non-decreasing sequence of offers to incite the coordination investment under asymmetric information on cost and reservation utility for the manufacturer. The discussion of the results suggests that the model may explain some differences observed between collaborative theory and practice, namely asymmetry of information, over-investments and delayed agreement because of holdup risk. The work is illustrated with numerical examples.