Instructions - Page 1 of 4

Rounds

The experiment consists of 16 rounds.
Buyer and Supplier

This experiment is for two players, called the Buyer and the Supplier, who represent two companies engaged in an ongoing business relationship.

The Buyer has an opportunity to make an investment that will save him/her £1,500 in the long term. The investment costs the Buyer £500 and is only useful in conjunction with the one Supplier. So the Buyer is potentially £1,000 better off by deciding to invest, provided that he/she continues the business relationship with the Supplier.

The Supplier does not benefit directly from the Buyer's investment. The Supplier does, however, have an opportunity to raise his/her price by £750, knowing that the Buyer has made a net saving of £1,000 and can therefore afford to pay more. So the Supplier is potentially £750 better off and the Buyer potentially £1,000 - £750 = £250 better off, provided that the Buyer decides to keep the same supplier.

The Buyer may instead decide to change suppliers, in which case the Buyer ends up £500 worse off due to the wasted investment and the Supplier ends up £1,000 worse off due to the loss of business from the Buyer.

Table of Payoffs

The following table summarises the payoffs to both Buyer and Supplier.

Table of Payoffs
Buyer's potential saving is £1,500. Buyer's investment costs him/her £500. Supplier can raise price by £750.
Buyer's First Decision	Supplier's Decision	Buyer's Second Decision	Buyer's Payoff	Supplier's Payoff
Do Not Invest	(none)	(none)	£0	£0
Invest	Keep Price	(none)	£1,000	£0
Invest	Raise Price	Keep Supplier	£250	£750
Invest	Raise Price	Change Supplier	£−500	£−1,000