Positive implications of market valuation under asymmetric quality information

Jun Yang, Wei Lu and He Xu

International Journal of Production Research, 2016, vol. 54, issue 7, 2057-2074

Abstract: We investigate a buyer’s contract design problem in which the buyer’s supplier has private quality cost information and is concerned with market valuation. We characterise the parameters of the contract menu (including quantity, quality level and transfer payment) and determine the market price. Our results show that the supplier’s market value concern (MVC) has positive implications and mitigates the distortion of quality level. Although both the buyer and the entire chain system benefit from this MVC, it may give advantage or disadvantage to the supplier of the low-cost type, depending on this supplier’s efficiency and the extent of the MVC. Numerical study reveals that the buyer is insensitive to the pricing decision, which suggests that contracts subject to the optimal market price without MVC serve as a good heuristic.

Date: 2016
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Citations: View citations in EconPapers (2)

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DOI: 10.1080/00207543.2015.1090033

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