Coordinating a channel with asymmetric cost information and the manufacturers optimality

Yuelin Shen*, Sean P. Willems

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

44 Citations (Scopus)

Abstract

In a manufacturerretailer 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 manufacturers 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.

Original languageEnglish
Pages (from-to)125-135
Number of pages11
JournalInternational Journal of Production Economics
Volume135
Issue number1
DOIs
Publication statusPublished - Jan 2012
Externally publishedYes

Keywords

  • Buyback contract
  • Information asymmetry
  • Mechanism design
  • Supply chain coordination

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