The Impact of the Manufacturer-Hired Sales Agent on a Supply Chain with Information Asymmetry

Neda Ebrahim Khanjari (), Seyed Iravani () and Hyoduk Shin ()
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Neda Ebrahim Khanjari: School of Business, Rutgers, The State University of New Jersey, Camden, New Jersey 08102
Seyed Iravani: McCormick School of Engineering and Applied Science, Northwestern University, Evanston, Illinois 60208
Hyoduk Shin: Rady School of Management, University of California, San Diego, La Jolla, California 92093

Manufacturing & Service Operations Management, 2014, vol. 16, issue 1, 76-88

Abstract: This paper studies the impact of a manufacturer-hired sales agent on a supply chain comprising a manufacturer and a retailer. The sales agent is working mainly at the retailer's location to boost demand. We focus on a wholesale price contract, under which the retailer decides how much to order from the manufacturer. The information structure within the supply chain and the efficiency of the sales agent affect the supply chain members' expected profits. We show that, because of the agency issue between the sales agent and the manufacturer, when the retailer's demand forecast accuracy is similar to the manufacturer's and the wholesale price is fixed, the retailer's profit decreases as his demand forecast accuracy improves. We also illustrate that when the retailer's forecast accuracy is much better than the manufacturer's and the wholesale price is endogenous, his expected profit decreases as his forecast accuracy improves. Moreover, we demonstrate that having a more efficient sales agent is beneficial for the retailer when the wholesale price is fixed, whereas this is not always the case when the wholesale price depends on the efficiency of the sales agent.

Keywords: game theory; incentives and contracting; supply chain management (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:16:y:2014:i:1:p:76-88

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