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Technical note: Optimal long-term supply contracts with asymmetric demand information. (English) Zbl 1411.91358
Summary: We consider a manufacturer selling to a retailer with private demand information arising dynamically over an infinite time horizon. Under a backlogging model, we show that the manufacturer’s optimal dynamic long-term contract takes a simple form: in the first period, based on her private demand forecast, the retailer selects a wholesale price and pays an associated upfront fee, and, from then on, the two parties stick to a simple wholesale price contract with the retailer’s chosen price. Under a lost sales model, we show that the structure of the optimal long-term contract combines a menu of wholesale pricing contracts with an option that, if exercised by the retailer, reduces future wholesale prices in exchange for an immediate payment to the manufacturer.

91B40 Labor market, contracts (MSC2010)
90B05 Inventory, storage, reservoirs
91A40 Other game-theoretic models
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