Contracting to Share Bilateral Information in Supply Chain

Conference paper
Part of the Lecture Notes in Electrical Engineering book series (LNEE, volume 242)


This paper investigates the problem of information sharing under bilateral asymmetric information environment. More specifically, we consider a supply chain consisting of one risk-neural manufacturer and one risk-neural retailer for an innovation product. In order to facilitate the cooperation, the manufacturer and the retailer agree to share their private information that is known from the finished sample product. We give a relational contract specified the trading quantity and the corresponding transfer payments. We show that the wholesale price relational contract cannot induce the two parties to share their information truthfully and analyze how the false information affects the supply chain’s profit. In order to create sufficient incentives and internalize the supply chain’s objective, we design a new set of transfer payments specified the allocation rule based on the two parties’ information rents. We show that the relational contract with the new transfer payments can achieve truthful information revealing and allocate the ex post profit reasonably.


Supply chain Bilateral asymmetric information Relational contract Information rents 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.



This work was supported by the Foundation of National Nature Science of China (Grant No. 71071103).


  1. 1.
    Macaulay S (1963) Non-contractual relations in business. American Sociological Review 28(1):55–67Google Scholar
  2. 2.
    Levin J (2003) Relational incentive contracts. The American Economic Review 93(3):835–847Google Scholar
  3. 3.
    Taylor T, Plambeck E (2007) Simple relational contracts for capacity investment: Price-only vs. price-and-quantity. Manufacturing & Service Operations Management 9(1):94–113Google Scholar
  4. 4.
    Taylor T, Plambeck E (2007) Supply chain relationships and contracts: The impact of repeated interaction on capacity investment and procurement. Management science 53(10):1577–1593Google Scholar
  5. 5.
    Yue J, Austin J, Wang M et al (2006) Coordination of cooperative advertising in a two-level supply chain when manufacturer offers discount. European Journal of Operational Research 168(1):65–85Google Scholar
  6. 6.
    Hsieh C, Wu C, Huang Y (2008) Ordering and pricing decisions in a two-echelon supply chain with asymmetric demand information. European Journal of Operational Research 190(2):509–525Google Scholar
  7. 7.
    Gan X, Sethi S, Zhou J (2010) Commitment-penalty contracts in drop-shipping supply chains with asymmetric demand information. European Journal of Operational Research 204(3):449–462Google Scholar
  8. 8.
    Lee C, Yang R (2013) Supply chain contracting with competing under suppliers asymmetric information. IIE Transactions 45(1):25–52Google Scholar
  9. 9.
    Ha A (2001) Supplier-buyer contracting: Asymmetric cost information and cutoff level policy for buyer participation. Naval Research Logistics 48(1):41–64Google Scholar
  10. 10.
    Lau A, Lau H, Zhou Y (2006) Considering asymmetrical manufacturing cost information in a two-echelon system that uses price-only contracts. IIE Transactions 38(20):253–271Google Scholar
  11. 11.
    Wang J, Lau H, Lau A (2009) When should a manufacturer share truthful manufacturing cost information with a dominant retailer. European Journal of Operational Research 197(1):266–286Google Scholar
  12. 12.
    Shen Y, Willems S (2012) Coordinating a channel with asymmetric cost information and the manufacturer’s optimality. International Journal of Production Economics 135(1):125–135Google Scholar
  13. 13.
    Cakanyildirim M, Feng Q, Gan X et al (2012) Contracting and coordination under asymmetric production cost information. Production and Operations Management 21(2):345–360Google Scholar
  14. 14.
    Chatterjee K, Samuelson L (1987) Bargaining with two-sided incomplete information: An infinite horizon model with alternating offers. The Review of Economic Studies 54(2):175–192Google Scholar
  15. 15.
    Zhang Q, Luo J (2009) Coordination of supply chain with trade credit under bilateral information asymmetry. Systems Engineering-Theory & Practice 29(9):32–40Google Scholar
  16. 16.
    Esmaeili M, Zeephongsekul P (2010) Seller-buyer models of supply chain management with an asymmetric information structure. International Journal of Production Economics 123(1):146–154Google Scholar
  17. 17.
    Wang X, Wang X, Su Y (2012) Coordination and efficiency analysis of supply chain with bilateral asymmetric information. Computer Integrated Manufacturing Systems 18(6):1271–1280Google Scholar
  18. 18.
    Chen F, Federgruen A, Zhang Y (2001) Coordination mechanism for a distribution system with one supplier and multiple retailers. Management Science 47(5):693–708Google Scholar
  19. 19.
    Jin M, Wu S (2004) Coordinating supplier competition via auctions. Working Paper, Lehigh UniversityGoogle Scholar
  20. 20.
    BabaioffM,WalshW(2005) Incentive-compatible, budget-balanced, yet highly efficient auctions for supply chain formation. Decision Support Systems 39(1):123–149Google Scholar
  21. 21.
    Dutta S, Sarmah S, Goyal S (2010) Evolutionary stability of auction and supply chain contracting:An analysis based on disintermediation in the Indian tea supply chains. European Journal of Operational Research 207(1):531–538Google Scholar
  22. 22.
    Bolton P, Dewatripont M (2005) Contract theory. The MIT Press Cambridge, Massachusetts London, EnglandGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.School of Computer Science and TechnologySouthwest University for NationalitiesChengduPeople’s Republic of China
  2. 2.Business SchoolSichuan UniversityChengduPeople’s Republic of China

Personalised recommendations