Ethical Beliefs and Information Asymmetries in Supplier Relationships

Abstract

Heightened ethical concerns involving upstream suppliers (e.g., Peanut Corporation of America, dairy suppliers to Chinese infant formula manufacturers) have sparked interest in how managers’ knowledge of suppliers’ behavior influences decision making. This article explores the role of managers’ ethical beliefs in these often information asymmetric decisions. Using economic experiments, the authors asked managers to make strategic marketing decisions given upstream supplier ethical information. The results show how information asymmetries can interact with managers’ ethical beliefs to produce inconsistent behaviors related to (1) upstream investment in ethical product attributes and (2) willingness to leverage ethical product attributes in downstream markets. Specifically, low-ethical-beliefs managers seemed to rationalize leveraging ethics downstream even when upstream supplier past behavior was negative. High-ethical-beliefs managers invested positively in ethical product attributes with a known ethical supplier but were less willing to leverage that behavior downstream. The findings provide insight into how managers’ individual ethical beliefs, given upstream supplier information asymmetries, can affect stakeholders, including consumers, investors, and society at large.