Outsourcing with Identical Suppliers and Shortest-First Policy: A Laboratory Experiment

We report on a laboratory experiment based on a stylized model of decentralized decision-making situations in which companies outsource production orders or jobs to multiple identical suppliers. Each firm aims to minimize the sum of its completion times. We assume that each supplier employs the shortest-first policy, i.e., processes jobs optimally by placing them in order of increasing processing time. We find that even though subjects manage to coordinate more often when matched in fixed pairs than when randomly rematched each round, the sum of all completion times (social costs) is not significantly different across treatments. This implies that social costs are more variable in the treatment with fixed partners. Finally, the treatment dynamics reveal that while subjects show more of a general tendency to play dominated stage strategies when matched in fixed pairs, they also manage over time to avoid these strategies more so in this treatment.