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Does a Manufacturer Benefit from Selling to a Better-Forecasting Retailer?

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Author Info

  • Terry A. Taylor

    ()
    (Haas School of Business, University of California, Berkeley, Berkeley, California 94720)

  • Wenqiang Xiao

    ()
    (Stern School of Business, New York University, New York, New York 10012)

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    Abstract

    This paper considers a manufacturer selling to a newsvendor retailer that possesses superior demand-forecast information. We show that the manufacturer's expected profit is convex in the retailer's forecasting accuracy: The manufacturer benefits from selling to a better-forecasting retailer if and only if the retailer is already a good forecaster. If the retailer has poor forecasting capabilities, then the manufacturer is hurt as the retailer's forecasting capability improves. More generally, the manufacturer tends to be hurt (benefit) by improved retailer forecasting capabilities if the product economics are lucrative (poor). Finally, the optimal procurement contract is a quantity discount contract.

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    File URL: http://dx.doi.org/10.1287/mnsc.1100.1204
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 56 (2010)
    Issue (Month): 9 (September)
    Pages: 1584-1598

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    Handle: RePEc:inm:ormnsc:v:56:y:2010:i:9:p:1584-1598

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    Related research

    Keywords: supply chain contracting; asymmetric information; forecasting;

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    Cited by:
    1. Choi, Tsan-Ming, 2013. "Local sourcing and fashion quick response system: The impacts of carbon footprint tax," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 55(C), pages 43-54.

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