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Dynamic joint investments in supply chains under information asymmetry

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Author Info

  • AGRELL, Per

    ()
    (Université catholique de Louvain, CORE & Louvain School of Management, B-1348 Louvain-la-Neuve, Belgium)

  • KASPERZEC, Roman

    ()
    (Siemens AG, Fossil Power Generation Division, D-91058 Erlangen, Germany)

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.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010085.

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Date of creation: 01 Dec 2010
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Handle: RePEc:cor:louvco:2010085

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Keywords: supply chain management; investment; information;

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References

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  1. Gonz�lez, Patrick, 1999. "Specific Investment, Absence of Commitment and Observability," Cahiers de recherche 9902, Université Laval - Département d'économique.
  2. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243259, September.
  3. Gonzalez, Patrick, 2002. "Investment and Screening under Asymmetric Endogenous Information," Cahiers de recherche 0201, GREEN.
  4. Pitchford, Rohan & Snyder, Christopher M., 2004. "A solution to the hold-up problem involving gradual investment," Journal of Economic Theory, Elsevier, vol. 114(1), pages 88-103, January.
  5. Smirnov, V. & Wait, A., 2001. "Hold-up and Sequential Specific Investments," Department of Economics - Working Papers Series 807, The University of Melbourne.
  6. Kultti, Klaus & Takalo, Tuomas, 2002. " Hold-Ups and Asymmetric Information in a Technology Transfer: The Micronas Case," The Journal of Technology Transfer, Springer, vol. 27(3), pages 233-43, June.
  7. Belleflamme,Paul & Peitz,Martin, 2010. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9780521681599, April.
  8. Smirnov, V. & Wait, A., 2001. "Timing of Investments, Hold-up and Total Welfare," Department of Economics - Working Papers Series 808, The University of Melbourne.
  9. Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
  10. Agrell, P.J.Per J. & Lindroth, Robert & Norrman, Andreas, 2004. "Risk, information and incentives in telecom supply chains," International Journal of Production Economics, Elsevier, vol. 90(1), pages 1-16, July.
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