Supplier participation in digital transformation of a two-echelon supply chain: Monetary and symbolic incentives

Abstract

By employing four game models, this paper examines the impact of both monetary and symbolic incentives on supplier participation in digital transformation of a two-echelon supply chain. We find that in the presence of monetary incentives, the supplier may exhibit free riding behavior when the buyer’s cost-sharing is sufficiently high, thereby leaving the buyer with no incentive to motivate the supplier. In contrast, a hybrid contract combining monetary with symbolic incentives enhances supplier participation. As the hybrid incentive is not always effective, we propose an improved hybrid contract with a reward-punishment mechanism to better motivate the supplier. Analytical results reveal that both members enjoy higher profitability when the buyer’s reward and punishment scheme is set within a reasonable range.