THE EFFECTS OF SUPPLIER CLOSENESS AND SUPPLIER COST MODELING ON MANAGERIAL DECISIONMAKING AND RETAIL FIRM PROFITS IN MARKETS FOR EXPERIENTIAL GOODS
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The successful introduction of a product into the market is a complex process that requires effective procurement and marketing activities. This experimental research investigates the effects of supplier closeness and supplier cost modeling on managerial decision making, retail pricing, and firm profit, with a focus on procurement outcomes. To address this research question, we designed an incentivized laboratory experiment that captures a firm’s procurement and marketing decisions, including wholesale and retail pricing. The experiment was conducted under three different procurement regimes: (i) a regime that allowed managers to test procurement prices to gain information about the supplier’s cost structure before making one procurement offer to the supplier (i.e., supplier cost modeling); (ii) a regime that allowed managers to make up to three consecutive procurement bids to the supplier if an offer was rejected (i.e., procurement negotiation); and (iii) a regime that combined both of these features. The research findings demonstrate the importance of supplier closeness and cost modeling in the pricing determination and decision-making process. With these tools, managers can secure more accurate and reasonable procurement prices, establish retail prices that generate higher profits, and boost firm performance. The results of this study provide valuable insights into decision-making and organizational structure in retail enterprises.