Signaling Information in a Vertical Decentralized Supply Chain

Tian LI, Huajiang LUO, Weixin SHANG

Research output: Book Chapters | Papers in Conference ProceedingsConference paper (refereed)Researchpeer-review

Abstract

We consider a decentralized supply chain with one manufacturer and one retailer who are engaged in a sequential-move game. The manufacturer and the retailer decide the wholesale price and retail margin to maximize their respective profits. The manufacturer possesses some private information about future demand, and hence enjoys advantage from both Stackelberg leadership and information over the retailer. Though the retailer cannot observe the manufacturer’s private information, he can inferred it from leader’s wholesale price. However, to induce the retailer to reduce retail margin, the manufacturer has to lower down the wholesale price to signal a low demand which benefits the retailer. The general research question is whether the manufacturer’s profit is still higher than the retailer’s profit, as in the sequential-move game without private demand information. We find that information leakage cost may outweigh the benefit from Stackelberg leadership, and characterize conditions under which the retailer’s profit is higher than that of the manufacturer.
Original languageEnglish
Title of host publicationWCBM 2015 : Conference Proceeding Book
PublisherPeople and Global Business Association
Pages316-322
Number of pages7
Publication statusPublished - Jun 2015
EventWorld Conference on Business and Management (WCBM) 2015 - Seoul, Korea, Republic of
Duration: 28 Jun 20152 Jul 2015

Publication series

NameWCBM 2015 : Conference Proceeding Book
PublisherPeople & Global Business Association
ISSN (Print)2384-3586

Conference

ConferenceWorld Conference on Business and Management (WCBM) 2015
CountryKorea, Republic of
CitySeoul
Period28/06/152/07/15

Keywords

  • Vertical Supply Chain
  • Information Leakage
  • Stackelberg Leadership
  • Signaling Game

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