Sourcing Contract under Countervailing Incentives

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dc.contributor.ORCID0000-0001-9590-5627 (Sethi, SP)
dc.contributor.authorGan, X.
dc.contributor.authorFeng, Q.
dc.contributor.authorSethi, Suresh P.
dc.contributor.utdAuthorSethi, Suresh P.
dc.date.accessioned2020-04-28T01:29:57Z
dc.date.available2020-04-28T01:29:57Z
dc.date.issued2019-05-25
dc.descriptionDue to copyright restrictions and/or publisher's policy full text access from Treasures at UT Dallas is limited to current UTD affiliates (use the provided Link to Article).
dc.description.abstractWe study a retailer’s sourcing contract when the supplier’s reservation profit (offered by his outside options) depends on his cost, which is privately known to only the supplier. An interesting discovery from our analysis is that supply chain coordination may be achieved despite the information asymmetry between the two firms regarding the supplier’s type (i.e., his cost). This happens when the marginal contribution of the supplier’s cost efficiency to the trade matches with the supplier’s marginal reservation profit. In this case, the optimal contract quantities maximize the supply chain profits for the respective supplier types, and no information rent is paid to any supplier type. For the general case, we show that, regardless of his type, the supplier may have an incentive to overstate or understate his cost, depending on whether or not his marginal contribution to the trade exceeds his marginal reservation profit. We demonstrate six possible forms of the optimal contract. Observations from our analysis contrast with those derived from previous studies, complementing the theory of countervailing incentives. © 2019 Production and Operations Management Society
dc.description.departmentNaveen Jindal School of Management
dc.description.sponsorshipNational Natural Science Foundation of China [Grants NSFC‐71471107, 71725001, 71771189 and 71431004]
dc.identifier.bibliographicCitationGan, X., Q. Feng, and S. P. Sethi. 2019. "Sourcing Contract under Countervailing Incentives." Production and Operations Management 28(10): 2486-2499, doi: 10.1111/poms.13057
dc.identifier.issn1059-1478
dc.identifier.issue10
dc.identifier.urihttp://dx.doi.org/10.1111/poms.13057
dc.identifier.urihttps://hdl.handle.net/10735.1/8307
dc.identifier.volume28
dc.language.isoen
dc.publisherWiley-Blackwell
dc.rights©2019 Production and Operations Management Society
dc.source.journalProduction and Operations Management
dc.subjectAdverse selection (Insurance)
dc.subjectCountervailing incentives
dc.subjectBusiness logistics
dc.subjectContracts
dc.subjectProfit
dc.titleSourcing Contract under Countervailing Incentives
dc.type.genrearticle

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