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Coordinating a channel with asymmetric cost information and the manufacturer's optimality

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  • Shen, Yuelin
  • Willems, Sean P.

Abstract

In a manufacturer–retailer system with private retail cost information, we find that a set of incentive-compatible contracts consisting of wholesale and buyback prices can coordinate the channel for any retail cost. We then design two wholesale-buyback contracts by imposing a cutoff point on the retail cost. The first contract maximizes the manufacturer's expected profit while ensuring the channel is coordinated. The second contract assumes the same contractual structure without considering the effect on the channel. Both contracts are exactly solved. We find from numerical study that the manufacturer in the first contract can perform closely to the second one in many cases, and cases exist where both the manufacturer and the channel can do better in the first contract versus the second one.

Suggested Citation

  • Shen, Yuelin & Willems, Sean P., 2012. "Coordinating a channel with asymmetric cost information and the manufacturer's optimality," International Journal of Production Economics, Elsevier, vol. 135(1), pages 125-135.
    • Handle: RePEc:eee:proeco:v:135:y:2012:i:1:p:125-135
    DOI: 10.1016/j.ijpe.2010.11.012
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    Cited by:

    1. Jianxiong Zhang & Lin Feng & Wansheng Tang, 2014. "Optimal Contract Design of Supplier-Led Outsourcing Based on Pontryagin Maximum Principle," Journal of Optimization Theory and Applications, Springer, vol. 161(2), pages 592-607, May.
    2. Zhang, Shichen & Zhang, Jianxiong, 2018. "Contract preference with stochastic cost learning in a two-period supply chain under asymmetric information," International Journal of Production Economics, Elsevier, vol. 196(C), pages 226-247.
    3. Devangan, Lokendra & Amit, R.K. & Mehta, Peeyush & Swami, Sanjeev & Shanker, Kripa, 2013. "Individually rational buyback contracts with inventory level dependent demand," International Journal of Production Economics, Elsevier, vol. 142(2), pages 381-387.
    4. Rahimi-Ghahroodi, S. & Al Hanbali, A. & Zijm, W.H.M. & Timmer, J.B., 2020. "Multi-resource emergency supply contracts with asymmetric information in the after-sales services," International Journal of Production Economics, Elsevier, vol. 229(C).
    5. Araneda-Fuentes, Cristina & Lustosa, Leonardo Junqueira & Minner, Stefan, 2015. "A contract for coordinating capacity decisions in a business-to-business (B2B) supply chain," International Journal of Production Economics, Elsevier, vol. 165(C), pages 158-171.
    6. Huang, Song & Wang, Yun & Zhang, Xianmei, 2023. "Contracting with countervailing incentives under asymmetric cost information in a dual-channel supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 171(C).
    7. Ma, Miaomiao & Meng, Weidong & Li, Yuyu & Huang, Bo, 2023. "Impact of dual credit policy on new energy vehicles technology innovation with information asymmetry," Applied Energy, Elsevier, vol. 332(C).
    8. Lv, Fei & Xiao, Lei & Xu, Minghui & Guan, Xu, 2019. "Quantity-payment versus two-part tariff contracts in an assembly system with asymmetric cost information," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 129(C), pages 60-80.
    9. Yan, Bo & Wang, Tao & Liu, Yan-ping & Liu, Yang, 2016. "Decision analysis of retailer-dominated dual-channel supply chain considering cost misreporting," International Journal of Production Economics, Elsevier, vol. 178(C), pages 34-41.

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