Wholesale Price Contract Under Bilateral Information Asymmetry

Abstract

This paper investigates the impacts of bilateral asymmetric information in a supply chain. More specifically, we consider a supply chain consisting of one risk-neural manufacturer and one risk-averse retailer who have their private information regarding the manufacturing cost and risk aversion degree, respectively. We first construct a model under the bilateral asymmetric information case using M-V approach. There exists a pair of threshold values of cost and risk aversion degree such that the optimal trading quantity holds. We then give a wholesale price contract under bilateral asymmetric information case to examine the information revealing. We find that the manufacturer and the retailer both announce a lower information type to gain more opportunistically individual profit. This damages the supply chain's performance.