Impact of Structure, Market Share and Information Asymmetry on Supply Contracts for a Single Supplier Multiple Buyer Network

Abstract

Supply contracts have been studied extensively in the context of one buyer and one supplier. In recent times supply contracts literature has also extended to the single supplier multiple buyer and multiple supplier single buyer contexts. However, not much attention has been given to the effect of structure, market share and information asymmetry. This article studies a network consisting of one supplier and two buyers under the setting of complete and partial decentralization. In the former both buyers are independent of the supplier while in the latter the supplier and one buyer form a vertically integrated entity. Both buyers order their optimal quantity from the single supplier and subsequently produce similar product to sell in the same market. The supplier charges the buyer through one of the contracts available to her and the transfer price varies depending on the supply chain structure. From the perspective of the supplier, we discuss two main contract forms i.e. quantity-discount and nonlinear two-part tariff contracts and subsequently whole-sale price and linear two-part contract as special cases, each under symmetric and asymmetric information about buyers’ cost structure. Through the discussion of all sixteen scenarios we investigate the influence of network structure, market-share and asymmetry of information on supplier’s optimal contract decisions. We further discuss the value of information and cut-off policies under the consideration of reservation profit level for the buyers. We discuss the managerial implications of the analysis and indicate the directions of future research.