Setup Cost Reduction and Supply Chain Coordination in Case of Asymmetric Information

Karl Inderfurth () and Guido Voigt ()
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Karl Inderfurth: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg

No 8016, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: Screening contracts are a common approach to solve supply chain coordination problems under asymmetric information. Previous research in this area shows that asymmetric information leads to supply chain coordination deficits. We extend the standard framework of lotsizing decisions under asymmetric information by allowing investments in setup cost reduction. We find that asymmetric information leads to an overinvestment in setup cost reduction. Yet, the overall effect on supply chain performance is ambiguous. We show that these results holds for a wide variety of investment functions.

Pages: 41 pages
Date: 2008-06
New Economics Papers: this item is included in nep-bec and nep-cta
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