IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Commitment-penalty contracts in drop-shipping supply chains with asymmetric demand information

  • Gan, Xianghua
  • Sethi, Suresh P.
  • Zhou, Jing

We study a drop-shipping supply chain in which the retailer receives a customer's order and the supplier fills it. In such a chain, the supplier keeps inventory and bears inventory risks; the retailer focuses on marketing and customer acquisition, and forwards the orders to the supplier. The retailer usually has better customer demand information, and may send an over-estimated demand forecast to maximize her own interest, which may result in overstock for the supplier. On the other hand, since the retailer does not own inventory, the main concern of the retailer is that the acquired orders may not be fulfilled because of the supplier's shortage of stock. To cope with these challenges, we propose a menu of commitment-penalty contracts that can provide greater certainty of demand as well as greater certainty of supply. We focus our study in the asymmetric demand information case and we show that the supplier can obtain the retailer's demand information by offering a menu of commitment-penalty contracts. Under this mechanism, we find the solution that maximizes the supplier's expected profit.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal European Journal of Operational Research.

Volume (Year): 204 (2010)
Issue (Month): 3 (August)
Pages: 449-462

in new window

Handle: RePEc:eee:ejores:v:204:y:2010:i:3:p:449-462
Contact details of provider: Web page:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:204:y:2010:i:3:p:449-462. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.