Estimating the supply chain efficiency loss when the seller has to estimate the buyer's willingness to pay
2014, RAIRO - Operations Research, 48(4), pp.477-496
Abstract
We study the pricing problem between two firms when the manufacturer’s willingness to pay (wtp) for the supplier’s good is not known by the latter. We demonstrate that it is in the interest of the manufacturer to hide this information from the supplier. The precision of the information available to the supplier modifies the rent distribution. The risk of opportunistic behaviour entails a loss of efficiency in the supply chain. The model is extended to the case of a supplier submitting offers to several manufacturers. Some managerial insight through a numerical illustration is provided.