Dynamic joint investments in supply chains under information asymmetry

Per Agrell () and Roman Kasperzec ()
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Roman Kasperzec: Siemens AG, Fossil Power Generation Division, D-91058 Erlangen, Germany

No 2010085, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Supply chain management involves the selection, coordination and motivation of independently operated suppliers. However the central planner's perspective in operations management translates poorly to vertically separated chains, where suppliers may have rational myopic reasons to object to full in- formation sharing and centralized decision rights. Particular problems occur when a downstream coordinator demands relation-specific investments (equipment, cost improvements in processes, adaptation of components to downstream processes, allocation of future capacity etc) from upstream suppliers without being able to commit to long-term contracts. In practice and theory, this leads of- ten to a phenomenon of either underinvestment in the chain or costly vertical integration to solve the commitment problem. A two-stage supply chain under stochastic demand and information asymmetry is modelled. A repeated investment-production game with coordinator commitment in supplier's investment addresses the information sharing and asset- specific investment problem. We provide a mitigation of the hold-up problem on the investment cost observed by the supplier and an instrument for truthful revelation of private information by using an investment sharing device. We show that there is an interior solution for the investment sharing parameter and discuss some extensions to the work.

Keywords: supply chain management; investment; information (search for similar items in EconPapers)
JEL-codes: L24 M11 (search for similar items in EconPapers)
Date: 2010-12-01
New Economics Papers: this item is included in nep-com and nep-cta
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Citations: View citations in EconPapers (1)

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