Strategic information sharing in online retailing under a consignment contract with revenue sharing
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Strategic information sharing in online retailing under a consignment contract with revenue sharing Tatyana Chernonog1 Accepted: 21 September 2020 © Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract This work develops a general model of a two-echelon supply chain in which a dominant retailer interacts with a manufacturer via a consignment contract with revenue sharing. The manufacturer’s cost function is known only to him, whereas the retailer has only an estimation of this function, which is based on common knowledge. We formulate the interaction between the parties as a Stackelberg game in which the less informed party (the retailer) moves first. We investigate a strategic information-sharing policy of the manufacturer under general formulations of (i) the supply chain’s revenue and cost functions, and (ii) the manufacturer’s decision functions. Two models are considered: (i) a point-estimation model—the retailer relies on a single-valued estimation of the manufacturer’s cost function, based on her “best belief”; and (ii) an interval-estimation model—the retailer faces uncertainty with regard to the cost function and thus estimates its parameter values within intervals. We find a condition that distinguishes between a case in which it is optimal for both parties for the manufacturer to share his exact cost function and a case in which such information-sharing is not optimal for the manufacturer but is optimal for the retailer. In the interval-estimation model, equilibrium is obtained using a normative (probabilistic) approach as well as behavioral-decision criteria (max–max, max–min and regret minimization). Under a normative approach both hidden and known superiority of the manufacturer are considered. Finally, we use our model to analyze a supply chain of a mobile application. Keywords Supply chain · Consignment contract with revenue sharing · Information asymmetry · Strategic information sharing · Uncertainty
1 Introduction Online retail is currently the fastest growing retail market in Europe and North America. In particular, the U.S. Department of Commerce estimates consumers spent $513.61 billion
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Tatyana Chernonog [email protected] Department of Management, Bar-Ilan University, Ramat-Gan 5290002, Israel
123
Annals of Operations Research
online in 2018, up 14.2% from 2017, whereas total retail sales increased 4.1% to $3.63 trillion (see Ali 2018). Moreover, 2016 was the first year in which the number of shoppers who visited retail websites exceeded the number of shoppers who patronized brick-and-mortar stores during Black Friday weekend (the weekend that opens the Christmas shopping season, and typically the busiest shopping weekend of the year; Smith 2016). Prominent online retailers such as Amazon, e-Bay, and the Apple (iTunes) App Store are much larger and more dominant than most of their suppliers or manufacturers, many of which are small businesses. In many cases, such retailers interact with their suppliers by offering them a consignment contract, based o
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