Two-echelon supply chain coordination under information asymmetry with multiple types

Rutger Kerkkamp, Wilco van den Heuvel and Albert Wagelmans

No EI-2016-18, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: We analyse a principal-agent contracting model with asymmetric information between a supplier and a retailer. Both the supplier and the retailer have the classical non-linear economic ordering cost functions consisting of ordering and holding costs. We assume that the retailer has the market power to enforce any order quantity. Furthermore, the retailer has private holding costs. The supplier wants to minimise his expected costs by offering a menu of contracts with side payments as an incentive mechanism. We consider a general number of discrete single-dimensional retailer types with type-dependent default options. A natural and common model formulation is non-convex, but we present an equivalent convex formulation. Hence, the contracting model can be solved efficiently for a general number of retailer types. We also derive structural properties of the optimal menu of contracts. In particular, we completely characterise the optimum for two retailer types and provide a minimal list of candidate contracts for three types. Finally, we prove a sufficient condition to guarantee unique contracts in the optimal solution for a general number of retailer types.

Keywords: economic order quantity; mechanism design; asymmetric information; hidden convexity (search for similar items in EconPapers)
Pages: 43
Date: 2016-05-10
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://repub.eur.nl/pub/80104/EI2016-18.pdf (application/pdf)

Related works:
Journal Article: Two-echelon supply chain coordination under information asymmetry with multiple types (2018)
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:ems:eureir:80104

Access Statistics for this paper

More papers in Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute Contact information at EDIRC.
Bibliographic data for series maintained by RePub ( this e-mail address is bad, please contact ).