Service outsourcing contract design under asymmetric information

Abstract

PurposeUpstream suppliers attempt to outsource product after-sales services to midstream third-party service providers while selling the product directly to downstream sellers, forming a networked supply chain. However, a problem of information asymmetry in the market demand among supply chain members exists. The authors investigate the impact of demand information asymmetry among third-party service providers, upstream suppliers and downstream sellers in the supply chain on the supplier's contract selection under the networked framework.Design/methodology/approachThe authors establish a model in which the supplier can use a wholesale price contract and facilitate a signaling game between the third-party service provider and the seller. Conversely, the supplier could use a menu contract to establish an incentive mechanism to solve information asymmetry. The authors propose heuristic algorithms to quickly estimate a supplier's optimal profit.FindingsThe results show that when the demand forecasting bias is relatively small, the use of a menu contract by the supplier could eliminate information asymmetry; when the demand forecasting bias is large enough, the signaling mechanism between the third-party service provider and the seller could alleviate the double marginalization effect in the supply chain. Although it is common to solve the asymmetric information problem by establishing incentive mechanisms, the authors found that in the latter case, the supplier is better off when no incentive mechanisms are implemented in the networked supply chain.Originality/valueThis study compares screening and signaling effects and compares firms' profits in both cases.

Optimal channel selection considering price competition and information sharing under demand uncertainty

“…This is because retailers can obtain additional income through the commission model to compensate for the information loss resulting from the original model. In addition, whether in traditional offline channels or online resale channels, the double marginalization effect caused by information sharing has been discussed in many studies (Kurtuluş et al ., 2012; Shang et al ., 2016; Xia et al ., 2022). However, there is less literature that considers what behaviors of supply chain members and consumers will amplify or transfer the effect of double marginalization.…”

Exploring the effects of quality signals on search advertising performance: the moderating role of keyword attributes

“…Signaling theory is fundamentally concerned with reducing information asymmetry between parities (Connelly et al ., 2011; Xia et al ., 2022). There are three primary elements in signaling theory: two actors – signaler and receiver – as well as the signal itself (Connelly et al ., 2011).…”

Analysis of software promotion strategies in product-service integrated supply chains

“…Li et al (2022a, b) focused on a B2B supply chain and studied joint contracting on product order quantity and after-sales service decisions. Xia et al (2022) considered a threetier supply chain and explored the after-sales service outsourcing decision under asymmetric information context. Besides, there also exist literature that explored on-purchase and aftersales service simultaneously when studying the product supply chain (Hosseini-Motlagh et al, 2022;Li et al, 2022a, b).…”

“…(2022a, b) focused on a B2B supply chain and studied joint contracting on product order quantity and after-sales service decisions. Xia et al . (2022) considered a three-tier supply chain and explored the after-sales service outsourcing decision under asymmetric information context.…”