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

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  • 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
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