IDEAS home Printed from https://ideas.repec.org/a/eee/transe/v129y2019icp60-80.html
   My bibliography  Save this article

Quantity-payment versus two-part tariff contracts in an assembly system with asymmetric cost information

Author

Listed:
  • Lv, Fei
  • Xiao, Lei
  • Xu, Minghui
  • Guan, Xu

Abstract

This paper investigates an assembly system that consists of one assembler and two suppliers wherein one supplier possesses private cost information. We explore how in such a setting, the contract type (quantity-payment versus two-part tariff) and contracting sequence (simultaneous versus sequential) between the assembler and its suppliers influence the channel and individual firms’ performances. Our results for the basic model show the following: (1) Coordinating the purchase quantities from both suppliers does not always increase the channel’s and the assembler’s profits. (2) The assembler obtains the highest profit under a quantity-payment contract with sequential contracting. (3) The supplier with private information and the channel both prefer a two-part tariff contract over a quantity-payment contract. We also extend our basic model to a case where the assembler contracts with one supplier under a two-part tariff contract and with the other under a quantity-payment contract. We identify the firms’ equilibrium decisions and preferences over different contract types and contracting sequences.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:transe:v:129:y:2019:i:c:p:60-80
    DOI: 10.1016/j.tre.2019.07.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1366554519302236
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.tre.2019.07.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bin Hu & Anyan Qi, 2018. "Optimal Procurement Mechanisms for Assembly," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 655-666, October.
    2. Guan, Xu & Ma, Shihua & Yin, Zhe, 2015. "The impact of hybrid push–pull contract in a decentralized assembly system," Omega, Elsevier, vol. 50(C), pages 70-81.
    3. Lucy Gongtao Chen & Ding Ding & Jihong Ou, 2014. "Power Structure and Profitability in Assembly Supply Chains," Production and Operations Management, Production and Operations Management Society, vol. 23(9), pages 1599-1616, September.
    4. Binwei Dong & Wansheng Tang & Chi Zhou, 2018. "Strategic procurement outsourcing with asymmetric cost information under scale economies," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 69(11), pages 1751-1772, November.
    5. Mahesh Nagarajan & Yehuda Bassok, 2008. "A Bargaining Framework in Supply Chains: The Assembly Problem," Management Science, INFORMS, vol. 54(8), pages 1482-1496, August.
    6. Başak Kalkancı & Feryal Erhun, 2012. "Pricing Games and Impact of Private Demand Information in Decentralized Assembly Systems," Operations Research, INFORMS, vol. 60(5), pages 1142-1156, October.
    7. Ruina Yang & Lijun Ma, 2017. "Two-part tariff contracting with competing unreliable suppliers in a supply chain under asymmetric information," Annals of Operations Research, Springer, vol. 257(1), pages 559-585, October.
    8. Sang-Hyun Kim & Serguei Netessine, 2013. "Collaborative Cost Reduction and Component Procurement Under Information Asymmetry," Management Science, INFORMS, vol. 59(1), pages 189-206, November.
    9. Karl Widerquist, 2018. "The Bottom Line," Exploring the Basic Income Guarantee, in: A Critical Analysis of Basic Income Experiments for Researchers, Policymakers, and Citizens, chapter 0, pages 93-98, Palgrave Macmillan.
    10. Yunzeng Wang, 2006. "Joint Pricing-Production Decisions in Supply Chains of Complementary Products with Uncertain Demand," Operations Research, INFORMS, vol. 54(6), pages 1110-1127, December.
    11. Zhaolin Li & Jennifer K. Ryan & Lusheng Shao & Daewon Sun, 2019. "Incentive‐Compatible in Dominant Strategies Mechanism Design for an Assembler under Asymmetric Information," Production and Operations Management, Production and Operations Management Society, vol. 28(2), pages 479-496, February.
    12. Xiang Fang & Jun Ru & Yunzeng Wang, 2014. "Optimal Procurement Design of an Assembly Supply Chain with Information Asymmetry," Production and Operations Management, Production and Operations Management Society, vol. 23(12), pages 2075-2088, December.
    13. Faicel Hnaien & Alexandre Dolgui & Desheng Dash Wu, 2016. "Single-period inventory model for one-level assembly system with stochastic lead times and demand," International Journal of Production Research, Taylor & Francis Journals, vol. 54(1), pages 186-203, January.
    14. Esther Gal-Or & Mordechai Gal-Or & Anthony Dukes, 2007. "Optimal information revelation in procurement schemes," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 400-418, June.
    15. 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.
    16. Biswas, Indranil & Raj, Alok & Srivastava, Samir K., 2018. "Supply chain channel coordination with triple bottom line approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 115(C), pages 213-226.
    17. Zhibin (Ben) Yang & Volodymyr Babich, 2015. "Does a Procurement Service Provider Generate Value for the Buyer Through Information About Supply Risks?," Management Science, INFORMS, vol. 61(5), pages 979-998, May.
    18. Daniel Granot & Shuya Yin, 2008. "Competition and Cooperation in Decentralized Push and Pull Assembly Systems," Management Science, INFORMS, vol. 54(4), pages 733-747, April.
    19. 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.
    20. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    21. Albert Y. Ha, 2001. "Supplier‐buyer contracting: Asymmetric cost information and cutoff level policy for buyer participation," Naval Research Logistics (NRL), John Wiley & Sons, vol. 48(1), pages 41-64, February.
    22. Yin, Zhe & Wang, Chen & Yin, Qian, 2018. "Coordinating overseas and local sourcing through a capacitated expediting transportation policy," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 258-271.
    23. Huang, Song & Guan, Xu & Xiao, Binqing, 2018. "Incentive provision for demand information acquisition in a dual-channel supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 116(C), pages 42-58.
    24. Yang, Lei & Tang, Ruihong, 2019. "Comparisons of sales modes for a fresh product supply chain with freshness-keeping effort," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 125(C), pages 425-448.
    25. Charles J. Corbett & Xavier de Groote, 2000. "A Supplier's Optimal Quantity Discount Policy Under Asymmetric Information," Management Science, INFORMS, vol. 46(3), pages 444-450, March.
    26. Zhu, Xiaowei, 2016. "Managing the risks of outsourcing: Time, quality and correlated costs," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 90(C), pages 121-133.
    27. Li, Yina & Xu, Xuejun & Zhao, Xiande & Yeung, Jeff Hoi Yan & Ye, Fei, 2012. "Supply chain coordination with controllable lead time and asymmetric information," European Journal of Operational Research, Elsevier, vol. 217(1), pages 108-119.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sun, Shuxing & Zhang, Bin, 2022. "Operation strategies for nanostore in community group buying," Omega, Elsevier, vol. 110(C).
    2. Hannan Amoozad Mahdiraji & Aliasghar Abbasi Kamardi & Moein Beheshti & Seyed Hossein Razavi Hajiagha & Luis Rocha-Lona, 2022. "Analysing supply chain coordination mechanisms dealing with repurposing challenges during Covid-19 pandemic in an emerging economy: a multi-layer decision making approach," Operations Management Research, Springer, vol. 15(3), pages 1341-1360, December.
    3. Zhao, Senlin & You, Zhuangzhuang & Zhu, Qinghua, 2022. "Effects of asymmetric cost information on collection outsourcing of used products for remanufacturing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 162(C).
    4. Jiang, Zhong-Zhong & He, Na & Huang, Song, 2021. "Government penalty provision and contracting with asymmetric quality information in a bioenergy supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 154(C).
    5. Wang, Yuyan & Yu, Zhaoqing & Jin, Mingzhou & Mao, Jiafu, 2021. "Decisions and coordination of retailer-led low-carbon supply chain under altruistic preference," European Journal of Operational Research, Elsevier, vol. 293(3), pages 910-925.
    6. Shi, Chun-lai & Geng, Wei, 2021. "To introduce a store brand or not: Roles of market information in supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 150(C).
    7. Xing, Wei & Li, Qiankun & Zhao, Xuan & Li, Jialu, 2020. "Information sale and contract selection under downstream competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    8. Liu, Bingbing & Yu, Yugang & Guo, Xiaolong, 2021. "Simpler and better: Supply chain contracting in the presence of contract unobservability and upstream competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 154(C).
    9. Yan, Yingchen & Zhao, Qiuhong & Qin, Zhongfeng & Lev, Benjamin, 2022. "Inter-competitor outsourcing: On the advantages of profit and product launching time," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lan, Yanfei & Cai, Xiaoqiang & Shang, Changjing & Zhang, Lianmin & Zhao, Ruiqing, 2020. "Heterogeneous suppliers’ contract design in assembly systems with asymmetric information," European Journal of Operational Research, Elsevier, vol. 286(1), pages 149-163.
    2. Fu, Hong & Ma, Yongkai & Cai, Xiaoqiang, 2018. "Downstream firm’s investment with equity holding in decentralized assembly systems," Omega, Elsevier, vol. 75(C), pages 27-56.
    3. Aadhaar Chaturvedi, 2023. "Contracting with multiple suppliers: A multi‐item buyer's make versus buy decision," Production and Operations Management, Production and Operations Management Society, vol. 32(2), pages 434-448, February.
    4. Li, Zhaolin & Qian, Cheng & Ryan, Jennifer K. & Sun, Daewon, 2022. "Robust mechanism design and production structure for assembly systems with asymmetric cost information," European Journal of Operational Research, Elsevier, vol. 301(2), pages 609-623.
    5. Matsui, Kenji, 2019. "A supply chain member should set its margin later if another member's cost is highly uncertain," European Journal of Operational Research, Elsevier, vol. 275(1), pages 127-138.
    6. Bin Hu & Anyan Qi, 2018. "Optimal Procurement Mechanisms for Assembly," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 655-666, October.
    7. He, Yong & Zhao, Xuan & Krishnan, Harish & Jin, Shibo, 2022. "Cooperation among suppliers of complementary products in repeated interactions," International Journal of Production Economics, Elsevier, vol. 252(C).
    8. Xiao Huang & Tamer Boyacı & Mehmet Gümüş & Saibal Ray & Dan Zhang, 2016. "United We Stand or Divided We Stand? Strategic Supplier Alliances Under Order Default Risk," Management Science, INFORMS, vol. 62(5), pages 1297-1315, May.
    9. Guo Li & Lin Li & Mengqi Liu & Suresh P. Sethi, 2020. "Impact of power structures in a subcontracting assembly system," Annals of Operations Research, Springer, vol. 291(1), pages 475-498, August.
    10. 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).
    11. Li, Tingting & Chen, Junlin, 2020. "Alliance formation in assembly systems with quality-improvement incentives," European Journal of Operational Research, Elsevier, vol. 285(3), pages 931-940.
    12. Changwen Li & Bin Cao & Yong-Wu Zhou & T. C. Edwin Cheng, 2023. "Pricing, coalition stability, and profit allocation in the pull assembly supply chains under competition," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 45(3), pages 977-1011, September.
    13. Hong Fu & Yongkai Ma & Debing Ni & Xiaoqiang Cai, 2017. "Coordinating a decentralized hybrid push–pull assembly system with unreliable supply and uncertain demand," Annals of Operations Research, Springer, vol. 257(1), pages 537-557, October.
    14. Kumar, Patanjal & Baraiya, Rajendra & Das, Debashree & Jakhar, Suresh Kumar & Xu, Lei & Mangla, Sachin Kumar, 2021. "Social responsibility and cost-learning in dyadic supply chain coordination," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 156(C).
    15. Mahesh Nagarajan & Greys Sošić, 2009. "Coalition Stability in Assembly Models," Operations Research, INFORMS, vol. 57(1), pages 131-145, February.
    16. Andrew M. Davis & Bin Hu & Kyle Hyndman & Anyan Qi, 2022. "Procurement for Assembly Under Asymmetric Information: Theory and Evidence," Management Science, INFORMS, vol. 68(4), pages 2694-2713, April.
    17. Alibeiki, Hedayat & Gümüş, Mehmet, 2020. "Supply competition under quality scores: Motivations, information sharing and credibility," International Journal of Production Economics, Elsevier, vol. 226(C).
    18. Long Gao & Liang Guo & Adem Orsdemir, 2021. "Dual‐Channel Distribution: The Case for Cost Information Asymmetry," Production and Operations Management, Production and Operations Management Society, vol. 30(2), pages 494-521, February.
    19. Wei Zhang & Long Gao & Mohammad Zolghadr & Dawei Jian & Mohsen ElHafsi, 2023. "Dynamic incentives for sustainable contract farming," Production and Operations Management, Production and Operations Management Society, vol. 32(7), pages 2049-2067, July.
    20. Ananth Iyer & Omkar Palsule-Desai, 2019. "Contract Design for the Stockist in Indian Distribution Networks," Manufacturing & Service Operations Management, INFORMS, vol. 21(2), pages 398-416, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:transe:v:129:y:2019:i:c:p:60-80. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/description#description .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.