Contract Design with Asymmetric Production Cost Disruption Information in a Dual channel Supply Chain

Abstract:

The contract design problem under asymmetric production cost disruption information in a dual channel supply chain composed of one manufacturer and one retailer is investigated. By utilizing the principal agent theory and solving the Kuhn Tucker conditions of the optimization problem, the optimal contract under asymmetric production cost disruption information are derived. Moreover, the impact of asymmetric production cost disruption information on the dual channel supply chain’s optimal pricing, the production quantity decision and supply chain members' profit and the whole system performance of the dual channel supply chain are analyzed. It is found that the original production plan is still optimal under some specific conditions, asymmetric production cost disruption information does not necessarily cause profit loss for the system. And the conditions under which the asymmetric production cost disruption information will not cause profit loss to the system are also explicitly presented.

Key words:dual channel; disruption management; asymmetric information; principal agent theory; contract design