Coordinating Supply Chains With a General Price-Dependent Demand Function: Impacts of Channel Leadership and Information Asymmetry

Abstract

This paper studies the effects of channel leadership and information asymmetry on supply chain coordination (SCC) of a single-manufacturer ( M ) single-retailer ( R ) supply chain, which sells a product with a general stochastic price-dependent-demand function. Three all-units quantity discount (QD) contracts are examined: 1) the manufacturer-led QD (MQD); 2) the retailer-led QD (RQD); and 3) the vendor managed inventory QD (VQD), which represent different channel leaderships. The problems are constructed as multistage sequential games. We find that any VQD that coordinates the supply chain has an equivalent RQD counterpart, and hence only MQD and RQD need to be examined for SCC. For the symmetric information scenario, both MQD and RQD can achieve coordination and the respective conditions for RQD are distribution free, but not for the MQD case. Only RQD, but not MQD, can always achieve Pareto improvement. For the asymmetric information scenario, MQD achieves coordination only if the actual supply chain's optimal quantity is known by M , but this condition is not needed for RQD. There is a unique RQD that achieves SCC, and hence the profit division between channel members is fixed. To overcome this inflexibility issue, we demonstrate that R can offer a menu of two RQDs to M . However, Pareto improvement is not always guaranteed by using RQD. Since QD contracts are widely adopted in practice, this paper lays the foundation to advance our knowledge on how channel leadership affects performance under both the information symmetric and asymmetric cases.