Coordinating a channel with asymmetric cost information and the manufacturer's optimality

Yuelin Shen and Sean P. Willems

International Journal of Production Economics, 2012, vol. 135, issue 1, 125-135

Abstract: In a manufacturer–retailer system with private retail cost information, we find that a set of incentive-compatible contracts consisting of wholesale and buyback prices can coordinate the channel for any retail cost. We then design two wholesale-buyback contracts by imposing a cutoff point on the retail cost. The first contract maximizes the manufacturer's expected profit while ensuring the channel is coordinated. The second contract assumes the same contractual structure without considering the effect on the channel. Both contracts are exactly solved. We find from numerical study that the manufacturer in the first contract can perform closely to the second one in many cases, and cases exist where both the manufacturer and the channel can do better in the first contract versus the second one.

Keywords: Supply chain coordination; Information asymmetry; Buyback contract; Mechanism design (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:135:y:2012:i:1:p:125-135

DOI: 10.1016/j.ijpe.2010.11.012

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