Incentive Mechanism in Service Supply Chains Based on Wholesale Price Contract

Abstract

A Service supply chain occurs when a service provider outsources part of the service to a supplier. In service supply chains, as supplier offers service directly to final customers, it's hard for service provider to monitor or measure supplier's work. For this reason, the service provider has to offer an incentive mechanism to the supplier. This paper studies the optimal incentive mechanism in the service supply chain based on the wholesale price contract which is most generally used in practice. By setting up the incentive model, the research mainly discusses the prior condition of incentive, the optimal incentive mechanism and the condition to validate incentive, etc. The result shows: 1) Not all service supply chains need incentive mechanism; 2) Only with certain demand distribution can service supply chains provide effective incentive mechanism; 3) The optimal incentive mechanism has a bouncing discontinuous point.