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Failure fee under stochastic demand and information asymmetry

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  • Geng, Qin
  • Minutolo, Marcel C.

Abstract

We study a failure fee contract designed by a price-setting newsvendor retailer under information asymmetry. Under the contract, the manufacturer must pay the retailer a failure fee if the sales volume misses a target. We propose and compare two types of failure fee contracts: a brand-by-brand contract and a uniform contract. We find that the retailer prefers one to the other depending on parameters.

Suggested Citation

  • Geng, Qin & Minutolo, Marcel C., 2010. "Failure fee under stochastic demand and information asymmetry," International Journal of Production Economics, Elsevier, vol. 128(1), pages 269-279, November.
    • Handle: RePEc:eee:proeco:v:128:y:2010:i:1:p:269-279
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