Encouraging suppliers to process innovations: a game theory approach
by Toni Jarimo, Urho Pulkkinen, Ahti Salo
International Journal of Technology Intelligence and Planning (IJTIP), Vol. 1, No. 4, 2005

Abstract: This paper studies the design of process-innovation incentives in supplier networks. A real-life case study from the boat-building industry is presented to illustrate the importance of explicitly encouraging suppliers to continuous improvement. Motivated by the case study, we constructed a game theory model trying to capture the possible conflicting interests of different parties in a company network. Using our model, we applied three different bargaining rules in order to determine ex-ante profit-sharing principles that award process-innovations. The aim of profit sharing is that the efficiency-improving arrangements can be implemented so that none of the network companies has to incur losses. Consequently, if the profit-sharing principles are ex-ante contracted, then the network companies have the incentive to innovate.

Online publication date: Wed, 04-Jan-2006

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