Affiliation:
1. Naveen Jindal School of Management, The University of Texas at Dallas, Richardson, Texas 75080;
2. School of Data Science, City University of Hong Kong, Kowloon Tong, Hong Kong
Abstract
A New Approach to Contract Design with Private Inventory Information In a typical decentralized supply chain, a downstream retailer privately observes its inventory level and has an informational advantage over the upstream supplier. In “A Stationary Infinite-Horizon Supply Contract Under Asymmetric Inventory Information” by Bensoussan, Sethi, and Wang, the authors study how to optimally design a stationary, truth-telling, long-term contract in such a setting. In contrast to the classic first order approach in literature, they formulate the contract design as an optimization over a functional space and develop a solution approach based on the calculus of variations. They further apply their necessary optimality condition to the class of batch-order contracts, which replenish a prespecified inventory quantity for a fixed payment in each period only when the retailer has zero inventory on hand.
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Subject
Management Science and Operations Research,Computer Science Applications