Contracting for Product Support Under Information Asymmetry

Liu, Dong; Mishra, Nishant; Netessine, Serguei

doi:10.2139/ssrn.2881356

Cited by 4 publications

(6 citation statements)

References 35 publications

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“…Tarmidi also further indicates that the values of XBRL implementation increase the transparency in FS reporting. This is also supported by Contract Theory and Principal-Agent Theory which prescribe asymmetric information in decision making requires full disclosure and transparency for better judgement (Bovis & Sanchez Graells, 2016;Li, Mishra, & Netessine, 2017). Thus, the increase of information disclosure by XBRL is expected to improve judgement in the contractor selection process.…”

Section: Xbrl To Increase Transparency Of Financial Standing (Fs)mentioning

confidence: 92%

Enhancing Company Financial Transparency for Contractor Selection Process through XBRL: A Conceptual Framework

Wahab

Shavarebi

2021

Asian J. Interdiscip. Res.

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Amongst the predicament in selecting a contractor for project implementation is to identify a resilient partner who can withstand the financial impact posed by project risks and constraints. For that matter, decision-makers require full transparency of financial information of the candidates for an effective contractor selection process. In the context of Malaysia, authorities are adopting Extensible Business Reporting Language (XBRL) to convey information about companies financial standing. This study is aimed to develop a conceptual framework in utilising the increase of information brought along by XBRL implementation to facilitate transparency as required by decision-makers during the contractor selection process. This article is also articulating on factors to promote adoption of online business reporting to increase information integrity, recency and contextually to increase the transparency.

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Section: Xbrl To Increase Transparency Of Financial Standing (Fs)mentioning

confidence: 92%

Enhancing Company Financial Transparency for Contractor Selection Process through XBRL: A Conceptual Framework

Wahab

Shavarebi

2021

Asian J. Interdiscip. Res.

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“…The basis for this assumption is that the UG contracts usually proceed the standard warranty period so the operator has already been observing the device's performance and is somewhat clear about its reliability. This assumption is rather common in the literature (see, e.g., Bakshi et al., 2015; Kim et al., 2007; Li et al., 2016, among others).…”

Section: Final Remarksmentioning

confidence: 93%

“…In this paper, we relax the assumption that the service provider knows the operator's valuation and study the structures of the performance-based contract that could achieve optimality in all situations. Li et al (2016) construct a model for a situation in which the operator is better informed about product reliability and the supplier offers performance-based or transaction-based maintenance contracts. Similar to the majority of the papers reviewed so far, this model assumes that the operator's valuation as well as the supplier's cost structure are common knowledge.…”

Section: Production and Operations Managementmentioning

confidence: 99%

Toward servitization: Optimal design of uptime‐guarantee maintenance contracts

Hezarkhani

Nagarajan

Tong

2022

Production and Operations Management

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This paper analyzes the contracting of maintenance services provided by an original equipment manufacturer (OEM) to an operator for a device. The service provider can exert different levels of maintenance effort during the course of the contract and the device's reliability (uptime) is influenced by these levels. However, the service provider's effort level is noncontractible. Our research seeks to find the optimal structures, as well as parameters, of performance‐based maintenance contracts. We single out a unique uptime‐guarantee contract structure that contains profit‐maximizing contracts in many situations. Complete servitization is the essence of such optimal contract structures. With this contract structure, the service provider simply guarantees 100% uptime and compensates the operator's for any occurred downtime at a higher unit rate than it charges for maintenance services. Our findings show that some of the well‐known performance‐based contract structures used in practice (e.g., pay‐for‐performance contracts) can be suboptimal for the OEMs. We incorporate the customer's ability to affect the uptime and show that the optimal contract structures can also coordinate the customer's effort. We demonstrate the advantages and limitations of offering menus of contracts to increase the service provider's expected profits. Finally, through simulations using a sample data set, we find that a contract designed using the key ideas in our paper shows very promising results for practitioners.

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“…Li et al. (2018) compare the screening efficiency of PBC with transaction‐based contract for MRO outsourcing when the product failure rate is privately informed for the customer. Some other work combines the design of PBC with marketing‐related decisions.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The supplier's repair service is triggered by random equipment failures. Following the framework used in many papers on service contracts (e.g., Kim et al., 2010; Jain et al., 2013; Li et al., 2018; Li and Mishra, 2021a), we model the failure repair process as an

M/M/\infty

queue. System failures occur as a Poisson process with a rate λ that is determined by some exogenous activities such as product design and manufacturing.…”

Section: Modelmentioning

confidence: 99%

Negotiation for service contracting: incentives, bargaining power, and customer risk aversion

2022

Int Trans Operational Res

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In this paper, we analyze negotiation of service contracts when an equipment user (customer) outsources product failure repair service to an MRO (Maintenance, Repair, and Overhaul) supplier. The customer is risk averse due to serious consequences of system disruption. The two parties negotiate pricing terms and repair rate. We model the bilateral negotiations under three types of service contract: (i) fixed‐fee contract under which the customer pays a lump sum, (ii) pay‐per‐repair contract under which the customer pays for each repair incident, and (iii) uptime‐based contract under which the customer pays for product uptime. We investigate how different incentives under each contract interact with agents' bargaining power and customer risk aversion in the negotiation process, both theoretically and numerically. Despite that previous studies have shown that fixed‐fee contract generally does not provide incentives for suppliers to invest in repair capacity while uptime‐based contract does, we find that under a bargaining framework fixed‐fee contract can result in the highest (yet suboptimal) repair rate. Furthermore, consensus on contract types may not be achieved between the two parties. For the supplier, uptime‐based contract can result in the highest payoff while pay‐per‐repair contract leads to the lowest. For the customer, it may prefer to choose pay‐per‐repair contract when it is less risk averse and when the supplier has more bargaining power. Our results show some unexplored merits of other types of contracts when the advantages of uptime‐based contract have been highly cited.

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Contracting for Product Support Under Information Asymmetry

Cited by 4 publications

References 35 publications

Enhancing Company Financial Transparency for Contractor Selection Process through XBRL: A Conceptual Framework

Enhancing Company Financial Transparency for Contractor Selection Process through XBRL: A Conceptual Framework

Toward servitization: Optimal design of uptime‐guarantee maintenance contracts

Negotiation for service contracting: incentives, bargaining power, and customer risk aversion

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