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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.

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