B2B Contract Signaling: A Game-Theoretical Analysis of Commencing B2B Relationships
This paper studies the interaction between a supplier and a customer prior to entering a B2B-relationship. The customer has the opportunity to send a signal about the preferred contract type to the supplier. The supplier then makes an offer to the customer given the signal which the customer either accepts or declines.
The paper introduces a game-theoretic model of this interaction and defines conditions and best responses of both the supplier and the customer. Numerical results of this model are obtained with a simulation that optimizes the supplier’s investment in learning and the pricing strategy. Sensitivity analyses investigate the effects of these signals under different circumstances. The results show that the customer is often better off when sending no signal and keeping flexibility. Possible extensions of the introduced model are discussed and differences to empirical findings are highlighted and explained.