Asymmetric Demand Information Research Articles

Hybrid financing in a dual‐channel supply chain with asymmetric demand information

AbstractThis study delves into the interaction between hybrid financing and asymmetric demand information within a dual‐channel supply chain. In this setup, the supplier directly sells to customers and also through a capital‐constrained retailer. We investigate a unique financing approach involving a blend of bank loans and supplier equity investment to support the retailer's operational (procurement and marketing) activities. Analyzing the equilibrium strategies under both symmetric and asymmetric information settings yields intriguing insights. In the case of symmetric information, we find that the retailer's equilibrium order quantity decreases with the potential market size under hybrid financing, contrary to traditional notions. When asymmetric information is present, a higher acceptance of supplier equity investment by the retailer tends to lead to order quantity distortion downward, increasing signaling costs. Furthermore, a greater proportion of supplier equity investment prompts the retailer to order more products, ultimately boosting profits for both the retailer and supplier. This suggests that supplier equity investment can enhance supply chain efficiency and alleviate the double marginalization effect.

Manufacturer’s Channel Strategy and Demand Information Sharing in a Retailer-Led Green Supply Chain

In the rapidly evolving landscape of e-commerce, companies are increasingly focusing on their channel strategies to gain sustainable development. However, asymmetric demand information poses challenges to these decisions. This paper explores the interplay between a retailer’s information sharing strategy and a manufacturer’s channel strategy in a retailer-led green supply chain, where the manufacturer may establish an online channel to sell its green products directly. The dominant retailer has private demand information about the market and decides whether to share private information with the manufacturer. By establishing a game model, we analyze the impacts of information sharing and the manufacturer’s channel strategy on the payoffs for all the supply chain members, considering sustainability aspects such as the environmental benefits of green products and the efficiency of supply chain operations. The results show that information sharing benefits both the retailer and the manufacturer, irrespective of the establishment of an online channel. When the retailer shares demand information, opening an online channel benefits the manufacturer but benefits the retailer under certain conditions. Furthermore, through a numerical approach, we examine the strategic preferences of the firms and derive the equilibrium strategy. Interestingly, the manufacturer consistently prefers the scenario involving both an online channel and information sharing. The retailer’s preference, however, depends on the direct selling cost; it favors information sharing with or without an online channel based on this cost. Ultimately, our findings suggest that the equilibrium strategy can either be sharing information with an online channel or not sharing information without an online channel, which is contingent upon the direct selling cost and the forecast signal precision. These insights provide actionable strategies for enhancing the sustainability of supply chain operations.

Decisions of dual-channel fresh agricultural product supply chains based on information sharing

PurposeThis paper studies the optimal decision-making and coordination problem of a dual-channel fresh agricultural product (FAP) supply chain. The purpose is to analyze the impact of information sharing on optimal decisions and propose a coordination mechanism to encourage supply chain members to share information.Design/methodology/approachThe two-echelon dual-channel FAP supply chain includes a manufacturer and a retailer. By using the Stackelberg game theory and the backward induction method, the optimal decisions are obtained under information symmetry and asymmetry and the coordination contract is designed.FindingsThe results show that supply chain members should comprehensively evaluate the specific situation of product attributes, coefficient of freshness-keeping cost and network operating costs to make decisions. Asymmetric information can exacerbate the deviation of optimal decisions among supply chain members and information sharing is always beneficial to manufacturers but not to retailers. The improved revenue-sharing and cost-sharing contract is an effective coordination mechanism.Practical implicationsThe conclusions can provide theoretical guidance for supply chain managers to deal with information asymmetry and improve the competitiveness of the supply chain.Originality/valueThis paper combines the three characteristics that are most closely related to the reality of supply chains, including horizontal and vertical competition of different channels, the perishable characteristics of FAPs and the uncertainty generated by asymmetric demand information.

Competition in Remanufacturing with Asymmetric Demand Information

This paper examines remanufacturing decisions in the context of outsourcing, which have important implications for environmental and economic sustainability. Specifically, we model the competition between an experienced Original Equipment Manufacturer (OEM) and an emerging Independent Remanufacturer (IR). The OEM can decide the manufacturing quantities of a brand-new product, and the IR can collect the OEM’s used products and remanufacture them for resale. The information structure is asymmetric, as only the OEM knows the market size. We identify the equilibrium quantities of both firms, which are shown to be strongly influenced by the IR’s cost efficiency and the consumers’ willingness to pay for the IR’s products. Asymmetric information also plays an important role. Is it always better to hide information? Interestingly, the OEM makes the most profit when the IR has full information on the market size. We find that when the market size is high, the OEM’s and IR’s production and encroachment decisions are the same as when both parties have equal information. The OEM also does not benefit from hiding market information from the IR when the market size is low. Indeed, if the IR’s cost efficiency is moderate and the market size is low, the OEM’s profits are actually hurt by hiding market information. Here, the diminished profits from hiding market information arises from the OEM’s substantially reduced production quantity to prevent IR encroachment. The OEM’s production quantity is higher if the OEM shares market information and the IR encroaches on the market. Thus, by sharing information, the OEM’s benefit gained from increased production quantity outweighs the cost of losing its monopoly. Additionally, consumer surplus increases when the IR engages in remanufacturing, while social surplus increases only when either the OEM’s or IR’s product is strongly favored. Even if the IR does not engage in remanufacturing, the resulting OEM monopoly can still lead to a higher environmental impact under certain market conditions. This arises when the OEM lowers production quantities when the IR encroaches on the market, thereby improving the overall environmental impact. Therefore, policymakers seeking to improve environmental and economic sustainability by encouraging IRs must consider these complex competition dynamics and consumer preferences, as they indirectly influence OEMs’ production decisions.

Blockchain adoption and strategic contracting in a green supply chain considering market segmentation

PurposeThe aim of this study is to examine the influence of consumer preferences for overseas green products and the implementation of blockchain technology on the performance of a supply chain, which comprises an overseas manufacturer and a domestic e-commerce platform. This research endeavors to identify the optimal pricing decisions and strategies for both the manufacturer and the platform in the context of the expanding e-commerce and globalization of the economy.Design/methodology/approachThe authors propose and analyze four distinct models based on the selection of selling contracts by the manufacturer and the adoption strategy of blockchain by the platform, using game theory to obtain the optimal solutions for these models.FindingsThe authors show that consumer migration promotes the manufacturer's green inputs, while the expansion of green consumer proportion is not conducive to it. They also show that blockchain technology has the potential to effectively limit manufacturer cannibalization. Interestingly, the study reveals a cascading effect of advantage where the manufacturer's profit variation trend changes only with the integration of pricing power advantage and blockchain technology inputs. This effect suggests that the equilibrium strategy is achievable under the agency contract with blockchain adoption, while Pareto improvement can be obtained with blockchain technology under both selling contracts.Research limitations/implicationsThis research could be extended in several possible directions. First, future work could explore outsourcing strategies for overseas manufacturers. Second, more types of consumer heterogeneity and different risk preferences could be considered. Third, this study can be extended by further exploring the design of mechanisms under asymmetric demand information to make the model more realistic.Originality/valueThe authors examine the impact of market segmentation and consumer preferences on green supply chain decisions, and analyze supply chain members' strategic choices for selling contracts and blockchain adoptions. The research also sheds light on the theoretical underpinnings and practical applications of green supply chain development and blockchain applications.

Correction to Fixed‐fee vs. royalty licensing under asymmetric demand information

Correction to Fixed‐fee vs. royalty licensing under asymmetric demand information

Quantities vs. prices: monopoly regulation without transfer under asymmetric demand information

Quantities vs. prices: monopoly regulation without transfer under asymmetric demand information

Cooperative Advertising in Dual-Channel Supply Chain Under Asymmetric Demand Information

ABSTRACT This study investigates cooperative advertising and retailers’ demand- information sharing in a dual-channel supply chain consisting of a manufacturer and a retailer, where the manufacturer sells products through a traditional retail channel and a direct online channel. Owing to the spillover effect of advertising, the manufacturer pays local advertising expenditure at a certain ratio to pump sales in both channels. In this setting, we examine the influence of information sharing on the optimal advertising expenditure, pricing mechanism, and performance of the manufacturer and retailer. The results show that the manufacturer benefits from information sharing, whereas the retailer benefits when the retail channel accounts for a small market share. Moreover, the more significant spillover effect of advertising increases the probability that the retailer shares information voluntarily. This study contributes to the literature by simultaneously considering information asymmetry and manufacturers’ advertising participation rate in the cooperative advertising problem. We find that a supplementary effect exists between cooperative advertising and information sharing, which provides guidelines to companies. If manufacturers set a higher advertising participation rate, the probability of signing an information-sharing contract with retailers increases. Moreover, retailers’ information sharing can induce manufacturers to offer a higher participation rate.

Robust contract design and coordination under consignment contracts with revenue sharing

We study a classical supply chain consisting of a supplier and a retailer in which the former can sell the product through the latter under a consignment contract with revenue sharing. In this case, the supplier faces both uncertain yield (supply) and demand. In practice, it is difficult to precisely elicit the joint probability distribution of random demand and yield. Therefore, we investigate how to match demand with supply for supply chain when only partial distribution parameters, such as the first-two moments, are known. We use a distributionally robust approach to solve this challenge within the framework of a stylized two-stage Stackelberg game model. Under centralized and decentralized settings, a simple closed-form expression of the optimal robust production quantity that can properly match supply and demand can be completely characterized. Then, by comparing the performance of the two settings, we show that a supply chain double-marginalization issue exists. As such, we propose a subsidy mechanism based on a revenue-sharing contract to improve supply chain performance, and also prove the existence of a Pareto-improvement set, which can plausibly overcome the low efficiency of the supply chain. Our numerical studies further observe the impact of demand and yield uncertainty on the double-marginalization effect, the Pareto-improvement set, and both contract parties' expected profit loss. We also extend our model to consider the case of endogenizing pricing and asymmetric demand information.

Truthful double auction mechanisms for online freight platforms with transaction costs

In recent years, many online freight platforms have appeared to improve transport market efficiency. An important problem faced by such platforms is how to elicit the agents’ information and to match their supplies and demands efficiently. To address the problem, we propose the modified Multi-unit Trading Reduction and Vickery‒Clarke‒Groves (MMTR-MVCG) mechanism for considering heterogeneous transaction costs. Under this mechanism, the shippers and carriers first decide their bids, and then the platform determines the trading agents, sets the transaction prices, and matches the shippers’ demands and the carriers’ supplies. We show that this mechanism is incentive-compatible, individually rational, budget-balanced, and asymptotically efficient. For the special case with homogeneous transaction costs, we first show that the MMTR-MVCG mechanism can be simplified. In addition, we design a new double auction mechanism for the case with asymmetric demand information and homogeneous transaction costs and show that this mechanism also is incentive- compatible, individually rational, budget-balanced, and asymptotically efficient. Moreover, we conduct numerical studies to assess the impacts of transaction costs and information asymmetry on the mechanisms and compare the performance of our mechanisms with those of two commonly used mechanisms. Our mechanisms can yield greater social welfare, more trading agents, and larger trading volumes than the other two mechanisms. We also discuss the impact of the subsidy strategy.

The informational role of guarantee contracts

Guarantee credit financing (GCF), allows banks to offer loans to capital-constrained retailer (he) based on the guarantee contracts offered by the manufacturer (she). Therefore, this study investigates the signaling role of guarantee contracts when the retailer is less informed about its product's market potential. In particular, we explore a joint contract of guarantee credit and production quantity to deliver the manufacturer's demand information. We add a framework to the capital-constrained supply chain with asymmetric demand information under GCF. Using a signaling game to capture the demand information asymmetry, we identify the strategic interaction between the retailer and the manufacturer under GCF. Also, we investigate the value of GCF when both GCF and trade credit financing (TCF) are viable. We find that the single guarantee contracts cannot signal the manufacturer's demand information when the production cost is less than a threshold, otherwise, only the separating equilibria survive the intuitive criterion. Besides, the findings reveal that the demand information asymmetry can either benefit or harm the retailer or the manufacturer, but cannot benefit both of them. In addition, GCF remains an attractive financing option when both GCF and TCF are viable. A joint contract of guarantee credit and production quantity can be used to deliver the demand information if the guarantee contracts are invalid. Our paper helps to explain the impact of asymmetric demand information on supply chain partners’ decisions under GCF and sheds light on the design and use of guarantee contracts.

Contract design under asymmetric demand information for sustainable supply chain practices

Contract design under asymmetric demand information for sustainable supply chain practices

Simple Contracts to Coordinate the Capacity Procurement Model with Asymmetric Demand Information

Simple Contracts to Coordinate the Capacity Procurement Model with Asymmetric Demand Information

Optimal Contract Design Problem Considering the Retailer’s fairness concern with asymmetric demand information

Few works study the manufacturer’s optimal decisions in a supply chain considering the downstream retailer’s fairness concern with asymmetric demand information. Assuming that the retailer possesses private demand information and shows fairness concern behavior and that the manufacturer produces products with or without green quality, this paper derives the manufacturer’s optimal contract to screen the retailer’s private information. A basic model in which the manufacturer produces nongreen products is examined. Then, comparisons are conducted to further investigate the influences of the retailer’s fairness concern behavior and the greenness degree of products on the decision making within the supply chain, the manufacturer’s expected profits and the retailer’s expected utilities. The results show that the manufacturer can always benefit from producing green products. The retailer’s fairness concern behavior and the greenness degree of products can induce the manufacturer to change the optimal contract design strategy. Our findings can provide several managerial references for green supply chain management.

Quantity decision timing with spillover effect and asymmetric demand information

This study investigates how the spillover effect of retail service investment affects timing preference of quantity decision in a dual-channel supply chain under asymmetric demand information. The manufacturer-quantity-leader game and retailer-quantity-leader game are considered. Applying a signaling game-theoretic approach, we show that, for the chain members, whether to occupy the quantity decision leadership or not is conditional on the spillover intensity and the demand information value. We also identify certain conditions where the chain members can achieve a consensus on the quantity decision timing.

Coordination of elderly healthcare service supply chain with information asymmetry: Designs of option contracts under different demand distribution statuses

This paper studies the issue of demand information asymmetry in an elderly healthcare service (EHS) system represented by a two-echelon elderly healthcare service supply chain (EHSSC) comprising an elderly service integrator (ESI) and a service provider (ESP). The goal of the ESI is to decide on how much service capacity is required for placing orders to the ESP, who directly serves the customers. Considering discrete and continuous demand distribution statuses, a centralised model with symmetric demand information and decentralised models with asymmetric demand information are developed to analyse the optimal ordering decisions and discuss the influence of information asymmetry. Furthermore, option contracts are applied to help coordinate the supply chain under asymmetric demand information based on different demand distribution statuses. Optimal option contract menus are designed for the ESP to promote the information sharing. Results show that the option contract can coordinate the EHSSC with asymmetric demand information under both discrete and continuous demand distribution statuses. The exercise price will be higher under lower demand information than that under higher demand information and the transfer payment will be less under lower demand information than that under higher demand information. Moreover, although the ESI has demand information superiority and can make use of opportunistic behaviour to maximise its own profit, the ESP as the leader can design the option contract to incentive the ESI to achieve true information sharing, and even obtain nearly all of the channel profit.

Heterogeneous suppliers’ contract design in assembly systems with asymmetric information

We investigate a supply contract design problem in an assembly supply chain in which two heterogeneous suppliers produce complementary products and deliver them to the assembler. One supplier is more reliable and exhibits no supply risk, and the other is less reliable and exhibits supply risk. The assembler is better informed about demand and assembles these two types of components into final products. To elicit the assembler’s truthful report of private information, the more reliable supplier offers a contract to the assembler to determine the components’ quantities and the transfer payment. The less reliable supplier enduring a disruption designs a contract that includes the components’ quantities, the transfer payment and the unit penalty for any delivery shortfall. We study the cases where either supplier moves first and where they move simultaneously under symmetric and asymmetric demand information. We explore the values of the assembler’s information and find that the first mover is more reliant upon the existence of less asymmetric information and the second mover benefits more from the assembler’ information. Further, we find that a low reliability of the less reliable supplier enlarges the first mover’s value of information. We also examine the values of the contracting sequence and find that under symmetric information, the first mover benefits more from sequential contracting. However, interestingly, under asymmetric information, the first mover may benefit or be harmed by the first-mover right. We also find that a low reliability of the less reliable supplier discourages the supplier from using the first-mover right.

Delegation of Stocking Decisions under Asymmetric Demand Information

Problem definition: We consider the incentive design problem of a retailer that delegates stocking decisions to its store managers who are privately informed about local demand. Academic/practical ...

Delegation of Stocking Decisions Under Asymmetric Demand Information

Problem definition: We consider the incentive design problem of a retailer that delegates stocking decisions to its store managers who are privately informed about local demand. Academic/practical relevance: Shortages are highly costly in retail, but are less of a concern for store managers, as their exact amounts are usually not recorded. In order to align incentives and attain desired service levels, retailers need to design mechanisms in the absence of information on shortage quantities. Methodology: The headquarters knows that the underlying demand process at a store is one of J possible Wiener processes, whereas the store manager knows the specific process. The store manager creates a single order before each period. The headquarters uses an incentive scheme that is based on the end-of-period leftover inventory and on a stock-out occasion at a prespecified inspection time before the end of a period. The problem for the headquarters is to determine the inspection time and the significance of a stock-out relative to leftover inventory in evaluating the performance of the store manager. We formulate the problem as a constrained nonlinear optimization problem in the single period setting and a dynamic program in the multiperiod setting. Results: We show that the proposed “early inspection” scheme leads to perfect alignment when J equals two under mild conditions. In more general cases, we show that the scheme performs strictly better than inspecting stock-outs at the end and achieves near-perfect alignment. Our numerical experiments, using both synthetic and real data, reveal that this scheme can lead to considerable cost reductions. Managerial implications: Stock-out-related measures are typically not included in store managers’ performance scorecards in retail. We propose a novel, easy, and practical performance measurement scheme that does not depend on the actual amount of shortages. This new scheme incentivizes the store managers to use their private information in the retailer’s best interest and clearly outperforms centralized ordering systems that are common practice.

Coordinating a three-echelon fresh agricultural products supply chain considering freshness-keeping effort with asymmetric information

This paper studies the coordination problem of a three-echelon supply chain system consisting of one supplier, third-party logistics service providers (TPLSP) and one retailer that provides seasonal fresh agricultural products to customers. The market demand for the retailer is assumed to be influenced by the retail price, the product's freshness and other random variables. Both quantity and quality losses are viewed as endogenous variables of the freshness-keeping effort, which is decided by the TPLSP. Dynamic game models for both the decentralized decision mode and the centralized decision mode are developed, and asymmetric demand information is considered in the decentralized decision mode. The analysis shows that decentralized decision making could result in the distortion of the order quantity and selling price and could ultimately result in a loss of supply chain profit. The TPLSP is motivated to exaggerate the demand, which could seriously damage the supplier's interests. Based on an analysis of the major influencing factors in the supply chain system, a coordination contract based on cost and revenue sharing (RS) is designed for the two transaction processes in the three-echelon supply chain system. We illustrate the proposed models with a numerical study and conduct a sensitivity analysis of some of the key parameters in the models. It is proven that with the designed contract, the sales volume can be significantly expanded, all the supply chain members can benefit from Pareto improvement, and both the retailer and the TPLSP have no incentive to exaggerate the market demand.