Incentives for cost misrepresentation in supply chains |
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Authors: | Rabah Amir Thierry Leiber Isabelle Maret |
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Affiliation: | 1. Department of Economics, University of Arizona, Tucson, USA. Email: ramir@eller.arizona.edu;2. Institute of Business Administration, University of Franche Comte, Besan?on, France.;3. Bureau of Theoretical and Applied Econometrics, University of Strasbourg, Strasbourg, France. |
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Abstract: | This paper investigates sequential manufacturer–retailer price determination and channel performance under possible misrepresentation by one member of its privately known cost. To the standard double marginalization game, we add a preliminary stage where the manufacturer (alternately the retailer) announces its privately known constant marginal cost. We prove that the manufacturer has no incentive to misrepresent its cost, and we give respective sufficient conditions on the demand function for the retailer to overreport and to underreport costs. Depending on the shape of the demand function, opportunistic behavior by the retailer may lower or raise the manufacturer’s profit and channel performance. |
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Keywords: | channel cooperation channels of distribution cost misrepresentation double marginalization retailing and wholesaling C72 D82 L11 M31 |
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