An experimental research on governance mechanisms for cost of value chain

Purpose - The purpose of this paper is to discuss the governance mechanism of overcoming or solving three problems: cooperation problem, coordination problem and appropriation problem. Also to raise the value chain cost efficiency and to elevate the value chain competitive advantage.Design methodology approach - The methodology is the experimental study. The authors design an experience simulating the transaction process across firms to explore the separate and joint governance effects of trust and incentive on the cost of value chain.Findings - According to the experimental results it is found that the high level of trust between firms and the incentive based on the joint interests of value chain can effectively mitigate or avoid the cooperation, coordination and appropriation problems, and thus have significant governance effects on the cost of value chain. Incentive is out of effect when a much lower level of trust across firms exists, which reflects that there is a significant complementary relationship between trust and incentive mechanisms.Research limitations implications - The research limitation is that the practical experience and the cognition of experimenters of the researchers will influence the conclusion of the experiment, so the research on the influences of other factors must be deepened.Originality value - The paper's value is in setting out a value chain cost management theory frame, demonstrating trust and incentive as two kinds of governance mechanism in the value chain cost management mechanism, adopting experiment method to verify the above theory, and providing the relevant behavior evidence for future research.