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Motivating a Supplier to Test Product Quality

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  • Yaron Yehezkel

Abstract

type="main"> This paper considers a supplier that offers a buyer a new product of unknown quality. The supplier can run a test that partially reveals unverifiable information concerning the quality, and the buyer can learn the actual quality after agreeing to buy the new product. I identify two main features of a contract for motivating the supplier to run the test. First, the contract may specify an upward or downward quantity distortion. Second, the contract may include slotting allowances, which may be welfare reducing when they discriminate against financially constrained suppliers.

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  • Yaron Yehezkel, 2014. "Motivating a Supplier to Test Product Quality," Journal of Industrial Economics, Wiley Blackwell, vol. 62(2), pages 309-345, June.
    • Handle: RePEc:bla:jindec:v:62:y:2014:i:2:p:309-345
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    2. Shin, Dongsoo, 2015. "Incentives and management styles," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 22-31.

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