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Optimal contract design for outsourcing: pricing and quality decisions

Author

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  • Xiaowei Zhu
  • Samar K. Mukhopadhyay

Abstract

Outsourcing is currently being used as an important strategy for many companies in the USA to focus on the core competency, reduce cost and increase profit. We consider a company (buyer) outsourcing a part of her service. One of the main concerns of outsourcing is the quality of service. We use a game theoretic model to design optimal contracts between the buyer and the service supplier under the full information and the asymmetric information. In both cases, we find the optimum outsourcing quantity, quality, price and a cut-off point that will make the contract unsuitable.

Suggested Citation

  • Xiaowei Zhu & Samar K. Mukhopadhyay, 2009. "Optimal contract design for outsourcing: pricing and quality decisions," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 3(2), pages 197-217.
    • Handle: RePEc:ids:ijrevm:v:3:y:2009:i:2:p:197-217
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    Citations

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    Cited by:

    1. Choi, Tsan-Ming & Chow, Pui-Sze & Xiao, Tiaojun, 2012. "Electronic price-testing scheme for fashion retailing with information updating," International Journal of Production Economics, Elsevier, vol. 140(1), pages 396-406.
    2. 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.

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