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Supply chain contracting with competing suppliers under asymmetric information

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  • Chung-Yee Lee
  • Ruina Yang

Abstract

This article employs a screening model to examine the problem of supply chain contracting involving one retailer and two suppliers. The two suppliers compete to sell their products, which are partial substitutes, through a common retailer. The problem is analyzed using a two-stage game. In the first stage, suppliers independently but simultaneously announce the contract bundles. The retailer, who is closer to customers, has superior market information and decides which contracts to sign. Then the suppliers invest in raw materials. In the second stage, the retailer sets prices, which in turn determine the demand rates of products, to optimize their profits. The game is analyzed for two types of contracts: two-part tariff contracts and quantity discount contracts. The retailer’s optimal strategy is derived and the suppliers’ optimal contract design for both types of contracts is fully characterized. In particular, the performance of the two types of contracts is evaluated when the two products are independent. The result suggests that the information rent is higher under quantity discounts than two-part tariffs, although the latter makes the supplier better off. Additionally, the two types of contracts are compared in terms of total supply chain profit, information rent, and suppliers’ expected profits when the two products are imperfect substitutes. Both analytical and numerical results support the proposed approach.

Suggested Citation

  • Chung-Yee Lee & Ruina Yang, 2013. "Supply chain contracting with competing suppliers under asymmetric information," IISE Transactions, Taylor & Francis Journals, vol. 45(1), pages 25-52.
  • Handle: RePEc:taf:uiiexx:v:45:y:2013:i:1:p:25-52
    DOI: 10.1080/0740817X.2012.662308
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    Citations

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    Cited by:

    1. Anna Nagurney & Dong Li, 2014. "Equilibria and dynamics of supply chain network competition with information asymmetry in quality and minimum quality standards," Computational Management Science, Springer, vol. 11(3), pages 285-315, July.
    2. Gurmeet Singh & Indranil Biswas & Samir K Srivastava, 2023. "Managing supply chain with green and non‐green products: Channel coordination and information asymmetry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1359-1372, March.
    3. Xin Yun & Hao Liu & Yi Li & Kin Keung Lai, 2023. "Contract design under asymmetric demand information for sustainable supply chain practices," Annals of Operations Research, Springer, vol. 324(1), pages 1429-1459, May.
    4. Lee, Chung-Yee & Yang, Ruina, 2013. "Compensation plan for competing salespersons under asymmetric information," European Journal of Operational Research, Elsevier, vol. 227(3), pages 570-580.
    5. Emad Sane-Zerang & Jafar Razmi & Ata Allah Taleizadeh, 2020. "Coordination in a closed-loop supply chain under asymmetric and symmetric information with sales effort-dependent demand," Journal of Business Economics, Springer, vol. 90(2), pages 303-334, March.
    6. Mingzhu Yu & Ruina Yang & Zelong Yi & Xuwen Cong, 2020. "Contracting in Ocean Shipping Market Under Asymmetric Information," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 37(02), pages 1-24, March.
    7. Yang, Ruina & Yu, Mingzhu & Lee, Chung-Yee & Du, Yuquan, 2021. "Contracting in ocean transportation with empty container repositioning under asymmetric information," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    8. Bian, Wenliang & Shang, Jennifer & Zhang, Juliang, 2016. "Two-way information sharing under supply chain competition," International Journal of Production Economics, Elsevier, vol. 178(C), pages 82-94.
    9. Kebing Chen & Renxing Xu & Hanwei Fang, 2016. "Information Disclosure Model Under Supply Chain Competition with Asymmetric Demand Disruption," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 33(06), pages 1-35, December.
    10. Li, Xiaojing & Chen, Jing & Ai, Xingzheng, 2019. "Contract design in a cross-sales supply chain with demand information asymmetry," European Journal of Operational Research, Elsevier, vol. 275(3), pages 939-956.
    11. Kwon, Yong Woo & Sheu, Jiuh-Biing & Yoo, Seung Ho, 2022. "Quadratic quantity discount contract under price-dependent demand and consumer returns," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    12. Ni, Jian & Xu, Yue & Shi, Jia & Li, Jiali, 2024. "Product innovation in a supply chain with information asymmetry: Is more private information always worse?," European Journal of Operational Research, Elsevier, vol. 314(1), pages 229-240.
    13. Jian Li & Kin Keung Lai, 2023. "The abatement contract for low-carbon demand in supply chain with single and multiple abatement mechanism under asymmetric information," Annals of Operations Research, Springer, vol. 324(1), pages 437-459, May.
    14. Ruina Yang & Lijun Ma, 2017. "Two-part tariff contracting with competing unreliable suppliers in a supply chain under asymmetric information," Annals of Operations Research, Springer, vol. 257(1), pages 559-585, October.
    15. Hongxia Sun & Jie Yang & Yang Zhong, 2020. "Optimal Decisions for Two Risk-Averse Competitive Manufacturers under the Cap-and-Trade Policy and Uncertain Demand," IJERPH, MDPI, vol. 17(3), pages 1-17, February.

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