Contract design under asymmetric demand information for sustainable supply chain practices

Xin Yun, Hao Liu, Yi Li and Kin Keung Lai ()
Additional contact information
Xin Yun: Shanghai University
Hao Liu: China UnionPay Post-Doctoral Research Station
Yi Li: Xi’an Jiaotong University
Kin Keung Lai: Guangdong University of Technology

Annals of Operations Research, 2023, vol. 324, issue 1, No 46, 1429-1459

Abstract: Abstract Emerging smart technology spawns many start-up firms, which enter into the market and bring more instability and uncertainty to supply chains. This paper develops a game-theoretic model which captures the most crucial factors in market entry stage, such as market uncertainty, competition, contract design, distribution channel, and sustainability. We consider a supply chain consisting of one supplier and two retailers (an incumbent and an entrant). We assume that the incumbent first enters a market and possesses private information about market demand. The entrant encroaches upon the market after observing its big growth potentials. In this paper, we study how the supplier optimally designs the contract for the retailers under asymmetric information to make the supply chain more efficient and sustainable. Subsequently, we investigate the preference of contractual forms between a franchise contract (FC) and a two-part tariff contract (TTC), from the perspectives of the supplier, the incumbent retailer, and the whole supply chain, respectively. It turns out that the supplier prefers the TTC while the incumbent is better off under the FC when the demand variation is relatively high. In addition, we find that the TTC is beneficial to the whole supply chain in most cases. In other words, TTC can promote the coordination of the supply chain and realize the sustainable development of the supply chain. We further analyze the impact of the entrant entry on the supplier’s contract design for the incumbent. The supplier tends to charge the lower wholesale price and less franchise fee for the incumbent after the entrant entry. The supplier’s contract strategy is conducive to maintaining the horizontal competition and promoting the sustainability of the supply chain. We also analyze the supplier’s distribution channel decision and find that she is more willing to block the entrant from entering the market in most cases because the incumbent with the private demand information makes the supply chain more efficient. Finally, we also extend our results by altering some assumption in the basic model.

Keywords: Sustainable supply chain; Contracting design; Asymmetric information; Entrant entry (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10479-021-04124-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:annopr:v:324:y:2023:i:1:d:10.1007_s10479-021-04124-x

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1007/s10479-021-04124-x

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().