Preferences for contractual forms in supply chains

Lijian Lu and Yaozhong Wu

European Journal of Operational Research, 2015, vol. 241, issue 1, 74-84

Abstract: The supply chain contracting literature has focused on incentive contracts designed to align supply chain members’ individual interests. A key finding of this literature is that members’ preferences for contractual forms are often at odds: the upstream supplier prefers relatively complex contracts that can coordinate the supply chain; however, the downstream retailer prefers a wholesale price-only contract because it leaves more surplus (than does a coordinating contract), which the retailer can capture. This paper addresses the following question: Under what circumstances do suppliers and retailers prefer the same contractual form? We study supply chain members’ preferences for contractual forms under three different competitive settings in which multiple supply chains compete to sell substitutable products in the same market. Our analysis suggests that both upstream and downstream sides of the supply chain may prefer the same “quantity discount” contract, which would eliminate the conflicts of interest that otherwise typify contracting situations. More interesting still is that both sides may also prefer the wholesale price-only contract; this finding provides a theoretical explanation for why that inefficient (but simple) contract is widely adopted in supply chain transactions.

Keywords: Supply chain management; Competition; Contracting preferences (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221714006134
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:241:y:2015:i:1:p:74-84

DOI: 10.1016/j.ejor.2014.07.047

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().