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Positive implications of market valuation under asymmetric quality information

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  • Jun Yang
  • Wei Lu
  • He Xu

Abstract

We investigate a buyer’s contract design problem in which the buyer’s supplier has private quality cost information and is concerned with market valuation. We characterise the parameters of the contract menu (including quantity, quality level and transfer payment) and determine the market price. Our results show that the supplier’s market value concern (MVC) has positive implications and mitigates the distortion of quality level. Although both the buyer and the entire chain system benefit from this MVC, it may give advantage or disadvantage to the supplier of the low-cost type, depending on this supplier’s efficiency and the extent of the MVC. Numerical study reveals that the buyer is insensitive to the pricing decision, which suggests that contracts subject to the optimal market price without MVC serve as a good heuristic.

Suggested Citation

  • Jun Yang & Wei Lu & He Xu, 2016. "Positive implications of market valuation under asymmetric quality information," International Journal of Production Research, Taylor & Francis Journals, vol. 54(7), pages 2057-2074, April.
    • Handle: RePEc:taf:tprsxx:v:54:y:2016:i:7:p:2057-2074
    DOI: 10.1080/00207543.2015.1090033
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    Cited by:

    1. Chen, You-hua & Chen, Liu-man & Mishra, Ashok K., 2021. "Information, Capacity Constraints and Quality on Firms Competition," 2021 ASAE 10th International Conference (Virtual), January 11-13, Beijing, China 329427, Asian Society of Agricultural Economists (ASAE).
    2. Shou, Biying & Fang, Yaner & Li, Zhaolin, 2022. "Information acquisition and voluntary disclosure with supply chain and capital market interaction," European Journal of Operational Research, Elsevier, vol. 297(3), pages 878-889.

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