International Journal of Production Research
supply chain coordination, supply chain management, two-part tariffs, adverse selection, information asymmetry
Business | Management Information Systems | Operations and Supply Chain Management
Supply chain coordination literature indicates that two-part tariff contracts cannot coordinate a supply chain with a supplier and a retailer under information asymmetry, but can coordinate the channel under full information, while leaving the retailer zero profit. Motivated by the practice of Costco Business Centres, we incorporate customer heterogeneity, near-saturated retail market and asymmetric information into a stylised model. The retailer has the knowledge of customer heterogeneity while the supplier does not. The supplier, on the other hand, designs a menu of two-part tariffs for the retailer to choose from. We have found that two-part tariffs can coordinate the supply chain under asymmetric information, while leaving the retailer a positive profit. In addition, a one-size-fits-all two-part tariff can coordinate the supply chain at equilibrium, i.e. there is no need for the supplier to design different two-part tariffs for the retailer who may possess different types of information.
Chongqi Wu, Kunpeng Lu, and Tianqin Shi. "Supply chain coordination with two-part tariffs under information asymmetry" International Journal of Production Research (2017): 2575-2589. https://doi.org/10.1080/00207543.2016.1240383