Supply chain relationships and psychological distance: an experimental investigation

Purpose An inherent aspect of global supply chains is that psychological distances exist between supply chain partners. Drawing on construal-level theory, we examine the effect of spatial and social distances between supply chain partners to understand how psychological distances impact sequential supply chain pricing and profit distributions. Design/methodology/approach We hypothesise that closer psychological distances will increase fairness concerns, leading to lower prices and higher supply chain efficiency by overcoming double marginalisation issues. We test our hypotheses by conducting two online experiments with American and Indian participants. Findings Study 1 finds that a closer psychological distance (i.e. same-country pairs) leads to lower pricing and higher efficiency. However, the lower pricing is driven entirely by the first mover (e.g. the supplier) pricing more fairly, which results in a higher profit for the second mover (e.g. the retailer) and a higher channel profit. Study 2a analyses the two dimensions of psychological distance separately. Although we find that a closer distance leads to lower pricing and higher profits, the dimensions of psychological distance driving these effects differ between participants, with Indian [American] pricing decisions being more impacted by spatial [social] distances. Originality/value Our findings provide insights into how psychological distances that naturally exist in supply chains can substantially impact pricing decisions and profit distributions. Moreover, we present a novel cultural-dependent insight that the impacts of a partner's distance manifest through different dimensions of psychological distances.