Incentives for Retailer Forecasting: Rebates vs. Returns

Taylor, Telford; Xiao, Wenqiang

doi:10.1287/mnsc.1090.1045

Cited by 104 publications

(53 citation statements)

References 20 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The sequence of contract offer and forecast investment we use in this paper is commonly used in models of supply chain contracting with demand forecast investments (Lariviere 2002, Taylor andXiao 2009). Note that retailers' demand forecasting might also come earlier than the supplier's contract offer.…”

Section: Discussionmentioning

confidence: 99%

“…1592-1610 screen retailers who are efficient forecasters. Taylor and Xiao (2009) show that under rebate contracts in a single supplier/single retailer setting, the retailer might overinvest in demand forecasting, and the system can benefit from the retailer having an inferior forecasting technology. Furthermore, a return contract instead of a rebate contract can coordinate the supply chain in this model.…”

Section: Literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination

Shin

Tunca

2010

Operations Research

160

View full text Add to dashboard Cite

We study the effect of downstream competition on incentives for demand forecast investments in supply chains. We show that with common pricing schemes, such as wholesale price or two-part tariffs, downstream firms under Cournot competition overinvest in demand forecasting. Analyzing the determinants of overinvestment, we demonstrate that under wholesale price contracts and two-part tariffs, total demand forecast investment can be very significant, and as a result, the supply chain can suffer substantial losses. We show that an increased number of competing retailers and uncertainty in consumer demand tend to increase inefficiency, whereas increased consumer market size and demand forecast costs reduce the loss in supply chain surplus. We identify the causes of inefficiency, and to coordinate the channel with forecast investments, we explore contracts in the general class of market-based contracts used in practice. When retailers' forecast investments are not observable, such a contract that employs an index-price can fully coordinate the supply chain. When forecast investments are observable to others, however, the retailers engage in an "arms race" for forecast investment, which can result in a significant increase in overinvestment and reduction in supply chain surplus. Furthermore, in that case, simple market-based contracts cannot coordinate the supply chain. To solve this problem, we propose a uniform-price divisiblegood auction-based contracting scheme, which can achieve full coordination when forecast investments are observable. We also demonstrate the desirable properties for implementability of our proposed coordinating contracting schemes, including incentive-compatible and reliable demand forecast information revelation by the retailers, and being regret-free.

show abstract

Section: Discussionmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination

Shin

Tunca

2010

Operations Research

160

View full text Add to dashboard Cite

show abstract

“…When the retailer is a strong forecaster, the manufacturer would 5 Further, we observed that for every fixed value of 0 and c the difference between the integrated system profit and the decentralized total system profit I − M + R is first increasing and then decreasing as the retailer's forecasting accuracy parameter a increases in a ∈ 0 1 Thus, the gain in system profit from centralization I − M + R is largest when the retailer's forecasting accuracy is moderate. 6 See Taylor and Xiao (2009) and Shin and Tunca (2010) for analyses that formally model a retailer's forecasting effort decision.…”

Section: Numerical Studymentioning

confidence: 99%

Does a Manufacturer Benefit from Selling to a Better-Forecasting Retailer?

2010

Self Cite

View full text Add to dashboard Cite

T his paper considers a manufacturer selling to a newsvendor retailer that possesses superior demand-forecast information. We show that the manufacturer's expected profit is convex in the retailer's forecasting accuracy: The manufacturer benefits from selling to a better-forecasting retailer if and only if the retailer is already a good forecaster. If the retailer has poor forecasting capabilities, then the manufacturer is hurt as the retailer's forecasting capability improves. More generally, the manufacturer tends to be hurt (benefit) by improved retailer forecasting capabilities if the product economics are lucrative (poor). Finally, the optimal procurement contract is a quantity discount contract.

show abstract

“…Broadly speaking, the impact of information asymmetry is studied in the principal-agent framework in which the agent possesses private information that the principal attempts to elicit, and it has been applied in various areas to design optimal mechanisms, including nonlinear pricing [27], managerial compensation schemes [3], supply chain contracting [2,10,26]), and auctions [9,15,[28][29][30]. In strict contrast with the aforementioned papers, our setting exhibits a "cascade" of contract designs because the reseller is not only a contract follower (for the manufacturer) but also a contract designer (for the salesperson).…”

Section: This Results In the Well-documented Double Marginalizationmentioning

confidence: 99%

Monitoring the market or the salesperson? The value of information in a multilayer supply chain

Kung

Chen

2011

Naval Research Logistics

View full text Add to dashboard Cite

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 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.

show abstract

Incentives for Retailer Forecasting: Rebates vs. Returns

Cited by 104 publications

References 20 publications

Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination

Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination

Does a Manufacturer Benefit from Selling to a Better-Forecasting Retailer?

Monitoring the market or the salesperson? The value of information in a multilayer supply chain

Contact Info

Product

Resources

About