Contracts and Information Structure in a Supply Chain with Operations and Marketing Interaction

Fouad El Ouardighi (), Gary Erickson, Dieter Grass and Steffen Jørgensen
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Fouad El Ouardighi: Department of Operations Management, ESSEC Business School, France
Gary Erickson: Department of Marketing, Michael G. Foster School of Business, University of Washington, USA
Dieter Grass: Department of Operations Research and Systems Theory, Vienna University of Technology, Austria
Steffen Jørgensen: Department of Business and Economics, University of Southern Denmark, Denmark

International Game Theory Review (IGTR), 2016, vol. 18, issue 04, 1-36

Abstract: The objective of the paper is to study how wholesale price and revenue sharing contracts affect operations and marketing decisions in a supply chain under different dynamic informational structures. We suggest a differential game model of a supply chain consisting of a manufacturer and a single retailer that agree on the contract parameters at the outset of the game. The model includes key operational and marketing activities related to a single product in the supply chain. The manufacturer sets a production rate and the rate of advertising efforts while the retailer chooses a purchase rate and the consumer price. The state of the game is summarized in the firms’ backlogs and the manufacturer’s advertising goodwill. Depending on whether the supply chain members have and share state information, they may either make decisions contingent on the current state of the game (feedback Nash strategy), or precommit to a plan of action during the whole game (open-loop Nash strategy). Given a contract type, the impact of the availability of information regarding the state of the game on the firms’ decisions and payoffs is investigated. It is shown that double marginalization can be better mitigated if the supply chain members adopt a contingent strategy under a wholesale price contract and a commitment strategy under a revenue sharing contract.

Keywords: Supply chain management; wholesale price contract; revenue sharing contract; information structure; operations; marketing (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219198916500146

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