Production-pricing Decision Problem In An Assembly System With Asymmetric Information

On one hand, information asymmetry is prevalent in economic activities, and two primary areas of supply chain where information asymmetries can occur relate to cost and demand information. On the other hand, processing and assembling production mode is commonly adopted in manufacturing industry. Thus, this dissertation studies the production-pricing decision problem in an assembly system with asymmetric cost and demand information. The main part of this dissertation consists of three chapters:Chapter3, Chapter4and Chapter5. By applying a series of methodologies:game theory, operation research and information economics, this dissertation takes an assembly system consists of two suppliers and one manufacturer as the research object, each chapter discusses the production-pricing decision problem in such an assembly system from different aspects, the following topics are addressed:First, I study the production and pricing problem in an assembly system wherein one of the suppliers has private cost information. Under this setting, as the channel master in the assembly system, the manufacturer reveals the supplier’s true cost information through contracts. When designing contracts, the manufacturer aims to maximize his profit on the one hand, and on the other hand, he looks forward to gain more profit through channel coordination. The result shows that when the manufacturer offers wholesale price contracts to both the two suppliers, it is unable to reveal the true cost information. When the manufacturer offers a markdown money contract to the supplier with private cost information, and offers a wholesale price contract to the other supplier, it is able to reveal the true cost information, but can’t realize channel coordination. When the manufacturer offers markdown money contracts to both the two suppliers, it is able to reveal the true cost information while ensuring the channel is coordinated. The numerical study shows that after channel coordination is achieved, both the channel profit and the profit of the supplier who possesses private cost information increase, the feasible region of private information becomes larger. However, when the region of private cost information is wide, the manufacturer is unable to reveal some small cost values if he decides to realize channel coordination. Whether the manufacturer will choose the contract groups that coordinate the channel is influenced by the region of private cost information, when the region is narrow, he chooses this contract groups, otherwise, he does this in a certain range.Second, I discuss the effect of suppliers’ decision sequence on each firm’s production-pricing decision with asymmetric manufacturer cost information. Under this setting, the two suppliers adopt transfer payment contracts to reveal the manufacturer’s true cost information. With regard to suppliers’ decision sequence, I consider two circumstances:the two suppliers offer their contracts sequentially (sequential decision) and the two suppliers offer their contracts simultaneously (simultaneous decision), analyze both suppliers’optimal decisions and compare each entity’s profit under each circumstance. The result shows that under simultaneous suppliers decision setting, the manufacturer purchases more components from each supplier. Compared with sequential suppliers decision setting, the assembler’s profit and the two suppliers’ total expected profit are higher when the suppliers make decisions simultaneously. If the two suppliers make decisions simultaneously, as long as they design the income distribution mechanism appropriately when the assembler’s private cost takes its lower boundary value, each supplier’s expected profit will be higher than that under sequential suppliers decision setting. The assembler always prefers suppliers to make decisions simultaneously rather than sequentially, so do both individual supplier themselves.Finally, I investigate the capacity reservation contract designing problem in an assembly system with asymmetric manufacturer demand information. I propose three capacity reservation contracts to incentivize the manufacturer to reveal his true information. The first one is a nonlinear transfer payment contract, the second one is a linear transfer payment contract, the last one is a hybrid linear and nonlinear transfer payment contract. I analyze each contract’s optimal parameters and compare each firm’s expected payoffs and the channel’s payoffs under different contracts. The numerical study shows that the assembler obtains the highest payoff under either the linear transfer payment contract or the hybrid contract. The suppliers’ optimal contract types are further influenced by their decision sequence. In particular, the supplier who makes decision earlier prefers the hybrid contract, while the supplier who makes decision later prefers any of the three contracts. The supply chain generates the highest payoff from either the nonlinear transfer payment contract or the hybrid contract.