Abstract
We consider a manufacturer selling to a retailer with private demand information arising dynamically over an innite time horizon. Under a backlogging model, we show that the manufacturer’s optimal dynamic long-term contract takes a simple form: in the rst period, based on her private demand forecast, the retailer selects a wholesale price and pays an associated upfront fee, and, from then on, the two parties stick to a simple wholesale price contract with the retailer’s chosen price. We also show the structure of the optimal long-term contract under lost sales combines wholesale prices with options that coordinate the supply chain.
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