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Information acquisition and transparency in a supply chain with asymmetric production cost information

Listed author(s):
  • Huang, Song
  • Yang, Jun
Registered author(s):

    This paper studies a retailer outsourcing the production to a supplier who can improve the quality of the production cost information by exerting costly forecasting effort. The outcome of the supplier's information acquisition may turn out to be either successful, with the supplier becoming informed, or unsuccessful, with the supplier remaining uninformed. Once the outcome of the forecasting is resolved, the supplier knows the information status (informed or uninformed) and content (high type or low type). We consider two-layer information asymmetry and analyze three different scenarios: no forecasting, forecasting with transparent information acquisition (disclosing information status) and forecasting with nontransparent information acquisition (hiding information status). We study both the retailer's contract design and the supplier's information disclosure decision. We obtain some interesting observations. First, the retailer's incentive for the supplier's forecasting is a threshold policy: If the forecasting cost is low, then the retailer will prefer the supplier to forecast, otherwise, the retailer will prefer the supplier not to forecast. Second, when the forecasting cost is high and the production cost variance is small, under transparent information acquisition, the high cost supplier's production quantity may be either upward or downward distorted; while under nontransparent information acquisition, the uninformed supplier's production quantity is either upward or downward distorted, and the high cost supplier's production quantity is always downward distorted. At last, the supplier can benefit from transparency only under some specific conditions, and when the production cost variance is extremely large, nontransparent information acquisition is always the supplier's first choice.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0925527316302845
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    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 182 (2016)
    Issue (Month): C ()
    Pages: 449-464

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    Handle: RePEc:eee:proeco:v:182:y:2016:i:c:p:449-464
    DOI: 10.1016/j.ijpe.2016.10.005
    Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

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    1. Fu, Qi & Zhu, Kaijie, 2010. "Endogenous information acquisition in supply chain management," European Journal of Operational Research, Elsevier, vol. 201(2), pages 454-462, March.
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    3. Terry A. Taylor & Wenqiang Xiao, 2010. "Does a Manufacturer Benefit from Selling to a Better-Forecasting Retailer?," Management Science, INFORMS, vol. 56(9), pages 1584-1598, September.
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    7. Bian, Wenliang & Shang, Jennifer & Zhang, Juliang, 2016. "Two-way information sharing under supply chain competition," International Journal of Production Economics, Elsevier, vol. 178(C), pages 82-94.
    8. Özalp Özer & Wei Wei, 2006. "Strategic Commitments for an Optimal Capacity Decision Under Asymmetric Forecast Information," Management Science, INFORMS, vol. 52(8), pages 1238-1257, August.
    9. Fangruo Chen & Guoming Lai & Wenqiang Xiao, 2016. "Provision of Incentives for Information Acquisition: Forecast-Based Contracts vs. Menus of Linear Contracts," Management Science, INFORMS, vol. 62(7), pages 1899-1914, July.
    10. Terry A. Taylor & Wenqiang Xiao, 2009. "Incentives for Retailer Forecasting: Rebates vs. Returns," Management Science, INFORMS, vol. 55(10), pages 1654-1669, October.
    11. Lei, Quansheng & Chen, Jian & Wei, Xingyu & Lu, Shan, 2015. "Supply chain coordination under asymmetric production cost information and inventory inaccuracy," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 204-218.
    12. Albert Y. Ha & Shilu Tong, 2008. "Contracting and Information Sharing Under Supply Chain Competition," Management Science, INFORMS, vol. 54(4), pages 701-715, April.
    13. Dai, Yue & Chao, Xiuli, 2016. "Price delegation and salesforce contract design with asymmetric risk aversion coefficient of sales agents," International Journal of Production Economics, Elsevier, vol. 172(C), pages 31-42.
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