Impact of untrue reporting in a two-echelon supply chain with asymmetric inventory information

Abstract

We consider a supplier–buyer chain where the supplier sells a single product to the buyer over a single-period selling season, but the initial inventory level at the buyer’s location is not observable to the supplier and should be reported to the supplier. The interaction between the supplier and the buyer is modeled as a Stackelberg game with asymmetric inventory information. The key feature of our model framework is the non-negative asymmetric inventory information assumption at the buyer’s location. Because of this point, some common managerial insights in the literature do not hold true anymore. For example, we have shown that the wholesale price from the supplier is not strictly decreasing in terms of the buyer’s order quantity.Under the wholesale contract, we have shown that there is a critical positive initial inventory level at the buyer’s location such that the buyer has an incentive to report a higher initial inventory level to the supplier if and only if the initial inventory level is below this critical positive initial inventory level. Then, under this untrue reporting, we have shown that the buyer is always better off but the supplier is always worse off. Most people may think that the performance of the chain will be reduced because of the untrue reporting, but we have shown that the performance of the chain is increased if the price sensitive demand is iso-elastic type and the initial inventory level at the buyer’s location is low.