Channel Incentives in Sharing New Product Demand Information and Robust Contracts

European Journal of Operational Research, Europ. J. Operational Research 207(3), pp. 1341-1349, 2010

Posted: 14 Oct 2017

See all articles by Özalp Özer

Özalp Özer

Jindal School of Management - The University of Texas at Dallas

Date Written: August 12, 2008

Abstract

Demand for a new product is often highly uncertain. As the developer of a new product, the manufacturer may reduce the uncertainty of the product’s demand through observing progress in his product development process or receiving demand signals directly from customers. This paper first shows that a centralized channel always benefits from improved demand information. Yet, to realize this benefit in a decentralized manufacturer–retailer channel, the manufacturer needs to disclose his private demand information to the retailer. We show that the manufacturer’s incentive to share his improved demand information depends on the supply contract signed with the retailer. Furthermore, mandating the manufacturer to disclose his improved demand information can actually reduce the total channel profit. We provide managerial insights by analyzing three widely used contract forms. We investigate whether these contracts are robust under an unanticipated demand information update observed by the manufacturer. We show that the quantity flexibility contract with a high return rate is not robust. The buyback contract, however, is robust and always achieves information sharing while preserving channel performance.

Suggested Citation

Özer, Özalp, Channel Incentives in Sharing New Product Demand Information and Robust Contracts (August 12, 2008). European Journal of Operational Research, Europ. J. Operational Research 207(3), pp. 1341-1349, 2010. Available at SSRN: https://ssrn.com/abstract=3052042

Özalp Özer (Contact Author)

Jindal School of Management - The University of Texas at Dallas ( email )

Jindal School of Management
800 W. Campbell Road
Richardson, TX 75080
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
103
PlumX Metrics