Does a Manufacturer Benefit from Selling to a Better-Forecasting Retailer?

Terry A. Taylor () and Wenqiang Xiao ()
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Terry A. Taylor: Haas School of Business, University of California, Berkeley, Berkeley, California 94720
Wenqiang Xiao: Stern School of Business, New York University, New York, New York 10012

Management Science, 2010, vol. 56, issue 9, 1584-1598

Abstract: This paper considers a manufacturer selling to a newsvendor retailer that possesses superior demand-forecast information. We show that the manufacturer's expected profit is convex in the retailer's forecasting accuracy: The manufacturer benefits from selling to a better-forecasting retailer if and only if the retailer is already a good forecaster. If the retailer has poor forecasting capabilities, then the manufacturer is hurt as the retailer's forecasting capability improves. More generally, the manufacturer tends to be hurt (benefit) by improved retailer forecasting capabilities if the product economics are lucrative (poor). Finally, the optimal procurement contract is a quantity discount contract.

Keywords: supply chain contracting; asymmetric information; forecasting (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (20)

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