Incentive contract design in competing distribution channels

Abstract

The service provision of the retailer has a great effect on customer satisfaction and market demand in the production distribution channel. Because the service level is the private information of the retailers in a supply chain, a key decision problem of the manufacturers is how to motivate the retailers to offer high service. This article addresses this issue under the framework of two competing distribution channels, where each channel has a single manufacture and a single retailer. We use the principal-agent theory and propose two models under both symmetric and asymmetric information. We show that external competition is a driving force to improve the service level of the retailers. The manufacturers' profits decrease under asymmetric information in comparison with that under symmetric information. In addition, the manufacturers' profits increase when weak competition exists among retailers under asymmetric information. We explore applications of our model and design contracts through a case study of a large consumer electronics corporation in China.

Assessing supplier performances under partnership in project‐type procurement

“…Partnership provides an incentive to mitigate hazards on both parties, namely customers' opaque expectations, and suppliers' incompliance for project specifications or exaggeration on contract pricing (Liu et al, 2009;Pongsiri, 2004). Information sharing, therefore, is likely to take place.…”

“…A project-type supply chain organized under partnerships resembles vertical integration (Errasti et al, 2009;Liu et al, 2009). First, the prospect of subsequent business provides an incentive for the agent to attain efficiencies in supply chain operations.…”

Mixed Channel Service Competition Based on Different Service Pattern in Software-as-a-Service

“…The cost curve will impact the competition, so the service competition imperceptibility and the cost curve make service competition different with price competition. The previous dual channel studies consider service were also based on price competition and assuming that dealer charge of service, the research purpose is how to motivate dealer to improve customer service level, such as Li study supply chain member's competition from the differences of service level and e-commerce implementing degree in-cluding strong and weak retailers [32], Liu study how to motivate retailers to provide high quality service level under two supply chain competition, based on the assumption that service level will affect consumer satisfaction and the demand, using the principal-agent theory, under the information asymmetry and symmetry situation [33]. This paper on the guide of dual channel price decisions research results, based on SaaS characteristics, study channel member's service level optimization decision of dual channel under service competition.…”

“…The former service costs is sales related, and the latter's service activities is fixed, mainly depends on the human and the equipment investment, this cost is depended on service level. Most scholars constructed service cost function as t convex function of service level [43][44][45][46].…”

Contract functions in service exchange governance: evidence from logistics outsourcing

“…Dispute resolution mechanisms serve as legal safeguards, although their implementation also depends on the negotiating approach of the parties and the emphasis put on their contractual rights and obligations (Lumineau and Malhotra 2011). The payment mechanism also serves as an economic safeguard in that it determines the allocation of financial gains and risks (Datta and Roy 2013;Wagner and Sutter 2012;Liu et al 2009). Cost-plus contracts, for instance, reduce financial risks for suppliers in cases of high environmental uncertainty (Kalnins and Mayer 2004;Corts and Sigh 2004).…”