How to negotiate with dominant suppliers? A game-theory perspective from the industry

Abstract

The negotiation with dominant suppliers usually drives to locked-in situation in which buyers have no choice but to accept the given conditions. Commonly found in the industry, there is a need to provide new insights to practitioners to leverage competition. Specifically, researchers apply and test concepts from Game-Theory in a real supplier selection process in the port cranes industry. Our research shows that existing literature in Game-Theory is mostly descriptive, very focused on auctions and has still limitations regarding the design, application and impact of these supplier selection concepts. Therefore, it is presented one of the first field studies presenting the application of game-trees and backward induction (tools from Game-Theory) for the design and execution of a real bargaining, including the hows and whys of our decisions. The results suggest that using Game-Theory can enhance the chance to have better negotiation outcomes by predicting the possible outcomes and prescribing the best fitting game to be design in order to increase competition among suppliers.