Optimal contract design for dual-channel supply chains under information asymmetry

Abstract

PurposeThe aim of this paper is to investigate the effect of information asymmetry on revenue sharing contracts and performance in a dual-channel supply chain. First, the authors model the optimum revenue sharing contract in a dual-channel supply chain under both the full information case and the asymmetric information case. Second, they contrast the optimal decisions of a dual-channel supply chain between the full information case and the asymmetric information case. Third, they explore the impact of asymmetric cost information on the performance of a dual-channel supply chain and investigate the information value.Design/methodology/approachThe authors present two main issues associated with revenue sharing contracts to alleviate manufacturer–retailer conflicts in a dual-channel supply chain. In the first issue, a revenue sharing contract is designed in a dual-channel supply chain under asymmetric cost information conditions, based on the principal-agent model. In the second issue, an optimal revenue sharing contract under full information conditions, based on the Stackelberg game is discussed. They explore the impact of asymmetric cost information on the performance of a dual-channel supply chain and investigate the information value based on comparative static analysis.FindingsFirst, the direct sale price is unchanged and independent of the retailer’s cost construct, but the wholesale price increases and the retail sale price does not decrease under asymmetric cost information. The information asymmetry leads to higher direct sale demand and lower retail sale demand. Second, information asymmetry is beneficial for the retailer, but imposes inefficiency on the manufacturer and the whole supply chain. Third, the performance of the dual-channel supply chain is improved if the retailer’s cost information is shared and the dual-channel supply chain reaches coordination. The retailer is willing to share its cost information if the lump sum side payment that the manufacturer offers can make up the retailer’s reduced profit due to sharing this information.Originality/valueThe authors proposed a contract menus design model in a dual-channel supply chain. They examine how information asymmetry affects optimal policies and performance. They compared the optimal policies under symmetric information and asymmetric information. Conditions under which the partners prefer sharing information are identified. They quantified the information value from the points of partners and the whole system.