Dynamic Supplier Contracts Under Asymmetric Inventory Information

In this paper, we examine a supply chain in which a single supplier sells to a downstream retailer. We consider a multi-period model, with the following sequence of events. In period t the supplier offers a contract to the retailer, and the retailer makes her purchasing decision in anticipation of the demand. The demand then unravels and the retailer carries over any excess inventory to the next period (unmet demand is lost). In period t + 1 the supplier designs a new contract based on his belief of the retailer’s inventory, and the game is played dynamically. We assume that shortterm contracts are used — i.e., the contracting is dynamic and is done at the beginning of each period. We also assume that the inventory position of the retailer before ordering is not observed by the supplier. This setting describes scenarios in which the downstream retailer does not share inventory/sales information with the supplier. For instance, it captures the phenomenon of retailers distorting pa...

• Type: Journal
• Year: 2010
• Where: IOR
• Authors: Hao Zhang, Mahesh Nagarajan, Greys Sosic
• Keywords: Contracting, Downstream Retailer, IOR 2010, Retailers