Reward-or-Penalty Inter-temporal Pricing of a Decentralized Channel Supply Chain under Asymmetric Information Condition

DOI: 10.5176/2251-1997_AF13.03

Authors: Dr. Weiping Liu, Dr. Lindu Zhao

Abstract:

In a decentralized channel supply chain, manufacturer often wants retailer to exert more sales efforts to increase the sale quantity. However, sales efforts are usually private information. Therefore, asymmetric information regularly exists between manufacturers and retailers. To improve the financial efficiency of the whole channel supply chain, reward-or-penalty inter-temporal pricing can be resorted to as a coordination mechanism. This mechanism allows manufacturer to take actions such as sharing costs of the retailers’ sale efforts, subsidize retailers’ markdown and passing the savings of production cost to the retailer to reward retailers who exert more sales efforts while penalizing those who do not. In return, manufacturer also benefit from the inter-temporal pricing.

Keywords: Decentralized channel supply chain, asymmetric information, inter-temporal pricing, coordination mechanism, reward-or-penalty, sales efforts