Contract design on digital platform for the risk-averse retailer with moral hazard

Kybernetes ◽  
2018 ◽  
Vol 47 (4) ◽  
pp. 716-741 ◽  
Author(s):  
Zhenhong Li ◽  
Bo Li ◽  
Yanfei Lan
Keyword(s):  
Supply Chain ◽  
Wholesale Price ◽  
Contract Design ◽  
Principal Agent ◽  
Risk Averse ◽  
Market Demand ◽  
Content Type ◽  
Digital Platform ◽  
Investment Level ◽  
Virtual Product

Purpose The advent of e-commerce has prompted the proliferation of digital platforms for virtual products. This reinforces the importance of the contract design problem between the virtual product supplier (he) and the digital platform retailer (she). The purpose of this paper is to investigate a principal-agent problem in a virtual product supply chain, in which the retailer’s sales-effort investment level to sell the virtual product is unobservable to the supplier, and the market demand is unknown to both parties. Design/methodology/approach In this study, the supplier designs two kinds of contracts (wholesale price contract and two-part tariff contract) to maximize his profit, while the retailer determines her sales-effort investment level and the virtual product’s retail price. The results of two different types of contracts are compared to explore in depth the effect of contract choices on the participants’ profits. Findings The authors show that the comparative results of the optimal wholesale prices, retail prices and sales-effort investment levels between these two kinds of contracts all rely on the retailer’s risk-averse degree. Specifically, both the supplier and the whole supply chain prefer the two-part tariff contract rather than the wholesale price contract, the retailer should do opposite when she is low risk-averse, whereas there is no distinction for the retailer’s utilities between these two kinds of contracts when she is more risk-averse. Originality/value The value of the research rests on the use of principal-agent theory in the contracts of virtual products considering the retailer’s sales-effort and risk-aversion degree. The research will serve as a guide for the virtual products’ supplier and the platform retailer in decision-making processes.

scholarly journals Research on the Maritime Logistics Pricing Model of Risk-Averse Retailer-Dominated Dual-Channel Supply Chain

2018 ◽  
Vol 25 (s2) ◽  
pp. 107-116
Author(s):  
Qing Fang ◽  
Zeping Tong ◽  
Liang Ren ◽  
Ao Liu
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Wholesale Price ◽  
Risk Averse ◽  
Market Demand ◽  
Maritime Logistics ◽  
Decentralized Supply Chain ◽  
Dual Channel ◽  
On Line ◽  
Dual Channel Supply Chain

Abstract Price decision is studied in a risk-averse retailer-dominated dual-channel supply chain, which consisting of one manufacturers and one retailer with both off-line and on-line channels. Firstly, two mean-variance models in centralized and decentralized supply chain are established. Secondly, the optimal solutions under the two decision modes are compared and analyzed. The results shows that the price of dual-channel of retailer decreased with the increase of retailers’ risk- aversion coefficient and the standard deviation of the fluctuation of market demand, while the wholesale price changes is on the contrary; in addition, when the market demand is greater than a certain value, the prices of dual channel are correspondingly higher in decentralized supply chain than in centralized supply chain, and vice versa. In addition, when the retailer’s risk aversion is in a certain interval, the expected utility of the whole supply chain is greater in centralized supply chain than in decentralized decision, and vice versa. Finally, a numerical example is given to verify the above conclusions.

Pricing supply chain option contracts: a bilevel programming approach

2020 ◽  
Vol 15 (4) ◽  
pp. 1567-1589
Author(s):  
Abir Trabelsi ◽  
Hiroaki Matsukawa
Keyword(s):  
Supply Chain ◽  
Demand Uncertainty ◽  
Stackelberg Game ◽  
Wholesale Price ◽  
Optimal Order ◽  
Programming Approach ◽  
Market Demand ◽  
Content Type ◽  
Option Contract ◽  
Optimal Pricing Strategy

Purpose This paper considers an option contract in a two-stage supplier-retailer supply chain (SC) when market demand is stochastic. The problem is a Stackelberg game with the supplier as a leader. This research assumes demand information sharing. The purpose of this study is to determine the optimal pricing strategy of the supplier along with the optimal order strategy of the retailer in three option contract cases. Design/methodology/approach The paper model the option contract pricing problem as a bilevel problem. The problem is then solved using bilevel programing methods. After computing, the generated outcomes are compared to a benchmark (wholesale price contract) to evaluate the contract. Findings The results reveal that only one of the contract cases can arbitrarily allocate the SC profit. In both other cases, the Stackelberg supplier manages to earn the total SC profit. Further analysis of the first contract, show that from the supplier’s perspective, the first stage forecast inaccuracy is beneficial, whereas the demand uncertainty in the second stage is detrimental. This contracting strategy guarantees both players better outcomes compared to the wholesale price contract. Originality/value To the best of the authors’ knowledge, this research is the first that links the option contract literature to the bilevel programing literature. It also the first to solve the pricing problem of the commitment option contract with demand update where the retailer exercises the option before knowing the exact demand.

Pricing and service decision of dual-channel operations in an O2O closed-loop supply chain

2017 ◽  
Vol 117 (8) ◽  
pp. 1567-1588 ◽  
Author(s):  
Lingcheng Kong ◽  
Zhiyang Liu ◽  
Yafei Pan ◽  
Jiaping Xie ◽  
Guang Yang
Keyword(s):  
Supply Chain ◽  
Closed Loop ◽  
Wholesale Price ◽  
Revenue Sharing ◽  
Service Level ◽  
Return Rate ◽  
Transfer Payment ◽  
Channel Conflict ◽  
Content Type ◽  
Dual Channel

Purpose The online direct selling mode has been widely accepted by enterprises in the O2O era. However, the dual-channel (online/offline, forward/backward) operations of the closed-loop supply chain (CLSC) changed the relationship between manufacturers and retailers, thus resulting in channel conflict. The purpose of this paper is to take a dual-channel operations of CLSC as the research target, where a manufacturer sells a single product through a direct e-channel as well as a conventional retail channel; the retailer are responsible for collecting used products in the reverse supply chain and the manufacturer are responsible for remanufacturing. Design/methodology/approach The authors build a benchmark model of dual-channel price and service competition and take the return rate, which is considered to be related to the service level of the retailer, as the function of the service level to extend the model in the reverse SC. The authors then analyze the optimal pricing and service decision under centralization and decentralization, respectively. Finally, with the revenue-sharing factor, wholesale price and recycling price transfer payment coefficient as contract parameters, the paper also designs a revenue-sharing contract led by the manufacturer and explores in what situation the contract could realize the Pareto optimization of all players. Findings In the baseline model, the results show that optimal price and service level correlate positively in centralization; however, the relation relies on consumers’ price sensitivity in decentralization. In the extension model, the relationship between price and service level also relies on the relative value of increased service cost and remanufacturing saved cost. When the return rate correlates with the service level, a recycling transfer payment can elevate the service level and thus raise the return rate. Through analyzing the parameters in revenue-sharing contract, a point can be reached where lowering the wholesale price and raising the transfer payment coefficient will promote retailers to share revenue. Practical implications Many enterprises establish the dual-channel distribution system both online and offline, which need to understand how to resolve their channel conflict. The conflict is especially strong in CLSC with remanufacturing. The result helps the node enterprises realize the coordination of the dual-channel CLSC. Originality/value It takes into account the fact that there are two complementary relationships, such as online selling and offline delivery; used product recycling and remanufacturing. The authors optimize the strategy of product pricing and service level in order to solve channel conflict and double marginalization in the closed-loop dual-channel distribution network.

Procedural fairness concerns in supply chain with retailer promotional effort

2018 ◽  
Vol 13 (2) ◽  
pp. 302-330 ◽  
Author(s):  
Tengfei Nie ◽  
Hualin Liu ◽  
Yilun Dong ◽  
Shaofu Du
Keyword(s):  
Supply Chain ◽  
Stackelberg Game ◽  
Wholesale Price ◽  
Procedural Fairness ◽  
Content Type ◽  
Promotional Effort ◽  
Fair Process ◽  
Slotting Allowances ◽  
Fairness Concerns ◽  
Distributional Fairness

Purpose The existing literature has a lack of modeling of procedural fairness concerns in the supply chain level. This paper aims to investigate how procedural fairness concerns affect channel decisions, performance and coordination. Design/methodology/approach This paper considers a supply chain consisting of one supplier and one retailer who have procedural fairness concerns in a classic Stackelberg game setting. The model is set in sales promotional environment. According to the existing literature, engagement is used to depict fair process. Some findings are made through analyzing respective decisions of the supplier and the retailer under the influence of procedural fairness concerns. Findings The results show that the channel efficiency can be improved when the retailer exhibits procedural fairness concerns, but if the aversion to unfair process exceeds a certain threshold, the retailer cannot benefit from it. Besides, the retailer profits more when he cares about distributional fairness, although the whole channel surplus can be improved by procedural fairness concerns. Originality/value This is the first paper to study the influences of procedural fairness concerns on supply chain decisions and channel performance. Finally, a mechanism combining a wholesale price contract with slotting allowances is proposed to coordinate the supply chain.

Understanding the role of big data analytics for coordination of electronic retail service supply chain

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Fatao Wang ◽  
Di Wu ◽  
Hongxin Yu ◽  
Huaxia Shen ◽  
Yuanjun Zhao
Keyword(s):  
Big Data ◽  
Supply Chain ◽  
Data Analysis ◽  
Big Data Analytics ◽  
Big Data Analysis ◽  
Coordination Mechanism ◽  
Market Demand ◽  
Content Type ◽  
Service Supply Chain ◽  
Retail Service

PurposeBased on the typical service supply chain (SSC) structure, the authors construct the model of e-tailing SSC to explore the coordination relationship in the supply chain, and big data analysis provides realistic possibilities for the creation of coordination mechanisms.Design/methodology/approachAt the present stage, the e-commerce companies have not yet established a mature SSC system and have not achieved good synergy with other members of the supply chain, the shortage of goods and the greater pressure of express logistics companies coexist. In the case of uncertain online shopping market demand, the authors employ newsboy model, applied in the operations research, to analyze the synergistic mechanism of SSC model.FindingsBy analyzing the e-tailing SSC coordination mechanism and adjusting relevant parameters, the authors find that the synergy mechanism can be implemented and optimized. Through numerical example analysis, the authors confirmed the feasibility of the above analysis.Originality/valueBig data analysis provides a kind of reality for the establishment of online SSC coordination mechanism. The establishment of an online supply chain coordination mechanism can effectively promote the efficient allocation of supplies and better meet consumers' needs.

scholarly journals Contracts Adjustment under Bilateral Information Updating in a Supply Chain

Complexity ◽  
2020 ◽  
Vol 2020 ◽  
pp. 1-15
Author(s):  
Xinhui Wang ◽  
Yingsheng Su ◽  
Zihan Zhou ◽  
Yiling Fang
Keyword(s):  
Supply Chain ◽  
Production Cost ◽  
Wholesale Price ◽  
Transfer Payment ◽  
Market Demand ◽  
Order Quantity ◽  
Minimum Order ◽  
Information Updating ◽  
Minimum Order Quantity ◽  
Market Outlook

This paper investigates contracts adjustment between one manufacturer and one retailer under bilateral information updating. The manufacturer incurs uncertain production cost and the retailer faces uncertain demand, but they can acquire independent signals to update production cost and demand, respectively. They commit an initial agreement on an initial wholesale price, minimum order quantity, and information sharing as well as the transfer payment and decisions adjustment when information is updated. We find that due to the joint impact of production cost variation and market variation, the manufacturer may not decrease (increase) her wholesale price when the updated production cost is lower (higher) than expected. The retailer places an additional order even if the wholesale price rises when the market outlook is good, but places an order with the minimum order quantity even if the wholesale price falls when the market outlook is bad. Secondly, for a certain level of information accuracy of the production cost and market demand, the retailer is always better off with information updating, but the manufacturer may be worse off with information updating when facing a bad market outlook. Thirdly, when information accuracy of the production cost and market demand varies, the manufacturer only benefits from a high accuracy of production cost. Profits of the retailer and the supply chain are increasing (decreasing) with accuracy of production cost if the updated production cost is larger (smaller) than expected.

Joint order allocation and transportation planning under uncertainty within a socially responsible supply chain

2019 ◽  
Vol 15 (2) ◽  
pp. 531-565 ◽  
Author(s):  
R. Ghasemy Yaghin ◽  
P. Sarlak
Keyword(s):  
Supply Chain ◽  
Social Responsibility ◽  
Transportation Planning ◽  
Textile Industry ◽  
Research Work ◽  
Planning Under Uncertainty ◽  
Market Demand ◽  
Order Allocation ◽  
Total Contribution ◽  
Content Type

Purpose This paper aims to propose an integrated supplier selection, order allocation, transportation planning model, along with investment planning for corporate social responsibility (CSR), over a given multi-period horizon under uncertainty. Furthermore, a customer’s behavior to pay more money for items with CSR attributes is considered in the total market demand. Design/methodology/approach The objective functions, i.e. social value of purchasing, total profit (TP), total delivery lead-time, total air pollution, total water pollution and total energy consumption with regard to a number of constraints are jointly considered in a multi-product system. It is worth noting that operational- and sustainable-related parameters are usually vague and imprecise in this area. Therefore, this paper develops a new fuzzy multi-objective optimization model to capture this inherent fuzziness in critical data. Findings Through the numerical examples in the textile industry, the application of the model and usefulness of solution procedures are carried out. The numerical results obtained from the proposed approach indicate the efficiency of the solution algorithm in different instances. Moreover, the authors observe that social investment of the buyer, to stimulate market demand, can affect the TP and also involve the total contribution of suppliers in social responsibility. Originality/value This research work concentrates on providing a procurement and inventory model through the lens of sustainability to enable textile supply chain managers and related industries to apply the approach to their inventory control and supply management. Totally, the proposed methodology could be applied by many fabric buyers of textile industry tackling purchasing issues and attempting to perfect understanding of social supply chains.

An Uncertain Supply Chain Problem with Sales Effort

2018 ◽  
Vol 22 (7) ◽  
pp. 1037-1045
Author(s):  
Lengceng Gao ◽  
◽  
Jiayu Shen
Keyword(s):  
Supply Chain ◽  
Stackelberg Game ◽  
Wholesale Price ◽  
Operating Costs ◽  
Market Demand ◽  
Uncertain Variables ◽  
Leading Role ◽  
Uncertain Supply ◽  
Constrained Models ◽  
Chain Problem

This paper considers a two-echelon supply chain problem that includes a manufacturer and a retailer. The manufacturer plays a leading role in the supply chain and must make efforts to increase sales. Due to many uncertain factors in business, the market demand, manufacturing costs and retail operating costs are assumed to be uncertain variables. Expected and chance-constrained models are developed to address these uncertain variables. Stackelberg game is used to solve the proposed models. The equilibrium optimal wholesale price and unit margin are provided in order to determine the maximum profit. Finally, numerical examples are presented to demonstrate the effectiveness of the proposed models.

scholarly journals Three-level supply chain coordination of fresh agricultural products in the Internet of Things

2017 ◽  
Vol 117 (9) ◽  
pp. 1842-1865 ◽  
Author(s):  
Bo Yan ◽  
Xiao-hua Wu ◽  
Bing Ye ◽  
Yong-wang Zhang
Keyword(s):  
Supply Chain ◽  
Internet Of Things ◽  
Supply Chain Coordination ◽  
Revenue Sharing ◽  
Agricultural Product ◽  
The Internet ◽  
Market Demand ◽  
Content Type ◽  
Revenue Sharing Contract ◽  
The Internet Of Things

Purpose The Internet of Things (IoT) is used in the fresh agricultural product (FAP) supply chain, which can be coordinated through a revenue-sharing contract. The purpose of this paper is to make the three-level supply chain coordinate in IoT by considering the influence of FAP on market demand and costs of controlling freshness on the road. Design/methodology/approach A three-level FAP supply chain that comprises a manufacturer, distributor, and retailer in IoT is regarded as the research object. This study improves the revenue-sharing contract, determines the optimal solution when the supply chain achieves maximum profit in three types of decision-making situations, and develops the profit distribution model based on the improved revenue-sharing contract to coordinate the supply chain. Findings The improved revenue-sharing contract can coordinate the FAP supply chain that comprises a manufacturer, distributor, and retailer in IoT, as well as benefit all enterprises in the supply chain. Practical implications Resource utilization rate can be improved after coordinating the entire supply chain. Moreover, loss in the circulation process is reduced, and the circulation efficiency of FAPs is improved because of the application of IoT. The validity of the model is verified through a case analysis. Originality/value This study is different from other research in terms of the combination of supply chain coordination, FAPs, and radio frequency identification application in IoT.

Decision Models of Supply Chain Under Asymmetric Information with Demand Disruption

2010 ◽  
Vol 143-144 ◽  
pp. 773-781
Author(s):  
Xin Rong Jiang ◽  
Yong Chao Li
Keyword(s):  
Supply Chain ◽  
Asymmetric Information ◽  
Stackelberg Game ◽  
Wholesale Price ◽  
Retail Price ◽  
Expected Profit ◽  
Decision Models ◽  
Market Demand ◽  
Optimal Production ◽  
Production Quantity

This paper studied the influence of asymmetric information and demand disruption on the decision of the supply chain. We analyzed the supply chain decision models based on a Stackelberg game under normal circumstances and demand disruption situation. The conclusion indicates when the market demand is disrupted, the optimal wholesale price, the retail price, the supplier’s expected profit and the supply chain system’s expected profit change in the same direction as the demand disruption, while the optimal production quantity and the retailer’s profit both have certain robustness under disruption. Finally we gave a numerical example to illustrate our analysis.

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