Monitoring the Market or the Salesperson? The Value of Information in a Multi-Layer Supply Chain

Naval Research Logistics, 58(8) 743-762, 2011

39 Pages Posted: 27 Nov 2012 Last revised: 15 Feb 2017

See all articles by Ling-Chieh Kung

Ling-Chieh Kung

National Taiwan University - Department of Information Management

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management; Hong Kong University of Science & Technology (HKUST) - Dept. of Industrial Engineering and Decision Analytics

Abstract

We study a supply chain in which a manufacturer relies on a salesperson to sell the products to the consumers. The sales outcome is determined by a random market condition and the salesperson's service level, both of which are privately observed by the salesperson. Apart from them, there are two types of resellers: a knowledgeable reseller observes the market condition, whereas a diligent reseller can monitor the service level. While delegating to a reseller enhances information acquisition, it may also result in double marginalization and supply chain inefficiency. We identify several operating regimes in which double marginalization can be eliminated via simple contracts and establish the benefit of monitoring the salesperson over monitoring the market. Our dominance result is not prone to our model characteristics regarding the complementarity of market condition and sales effort, the relative importance of adverse selection and moral hazard, and the contract form. We then generalize our model and re-establish the dominance result in the presence of reseller's risk aversion or private monitoring expertise. We also quantify the performance gaps among different selling schemes under various scenarios.

Keywords: multi-layer supply chain, partner selection, salesforce compensation, information asymmetry

Suggested Citation

Kung, Ling-Chieh and Chen, Ying-Ju, Monitoring the Market or the Salesperson? The Value of Information in a Multi-Layer Supply Chain. Naval Research Logistics, 58(8) 743-762, 2011, Available at SSRN: https://ssrn.com/abstract=2181221

Ling-Chieh Kung

National Taiwan University - Department of Information Management ( email )

No.1,Sec. 4, Roosevelt Rd
Taipei
Taiwan

Ying-Ju Chen (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Hong Kong University of Science & Technology (HKUST) - Dept. of Industrial Engineering and Decision Analytics ( email )

Hong Kong

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