Use of Supply Chain Contract to Motivate Selling Effort

Samar K. Mukhopadhyay () and Xuemei Su ()
Additional contact information
Samar K. Mukhopadhyay: Sungkyunkwan University
Xuemei Su: California State University Long Beach

A chapter in Supply Chain Coordination under Uncertainty, 2011, pp 255-280 from Springer

Abstract: Abstract Selling of a product is often delegated by the Original Equipment Manufacturers (OEM) to another firm called sales agent. The OEM needs to devise a mechanism to motivate the agent to exert higher marketing effort in order to boost her sales revenue. She also needs to design a profit allocation scheme, a complex task because of the fact that she has incomplete information about the agent’s marketing cost. In this chapter, two important contract forms are analyzed, compared and the OEM’s strategy are developed. Closed form solutions have been derived for three decision variables: marketing effort, order quantity and retail price for both forms of contracts. The revelation principle has been applied in that derivation which find inefficiency and “distribution distortion” due to information asymmetry. We show that the two contract forms perform differently, and each party’s preference toward a particular contract form is linked with the total reservation profit level and/or the sales agent’s cost type. We find that full trading opportunity, as in the full information case, cannot be achieved by any of the two contracts and the OEM suffers due to information deficiency. The chapter also identifies guidelines for the OEM to exert higher control or be more flexible. Further research avenues are also identified.

Keywords: Distribution channel; Game theory; Retail contracts; Sales agent; Supply chain (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:ihichp:978-3-642-19257-9_11

Ordering information: This item can be ordered from
http://www.springer.com/9783642192579

DOI: 10.1007/978-3-642-19257-9_11

Access Statistics for this chapter

More chapters in International Handbooks on Information Systems from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().