Abstract
We consider a contract design problem when the customer returns rate is private information to the retailer. Assuming that the retailer is a listed firm and cares about her market value, in the advertising-dependent demand setting, we derive the optimal menu of contracts and investigate the impact of the retailer's market value concern on the optimal contract parameters, as well as on the supply chain performance. It is shown that retailer's market value concern mitigates ordering quantity and advertising investment distortions caused by information asymmetry. Although this concern increases the manufacturer's expected payoff and the supply chains expected payoff, it may benefit or hurt the retailer depending on some specific conditions. [Received 15 September 2013; Revised 8 April 2014; Accepted 5 May 2014]
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