Cost-sharing contracts and efficiency in a two-stage supply chain
by Mark R. Frascatore, Farzad Mahmoodi
International Journal of Integrated Supply Management (IJISM), Vol. 6, No. 1, 2011

Abstract: This paper proposes an efficiency-enhancing contract mechanism in a two-stage supply chain. The model includes a buyer (the Original Equipment Manufacturer or OEM) who relies on a seller (the supplier) for key components. The self-interested supplier creates a level of capacity before demand is realised, but this level may not be optimal for the supply chain. Furthermore, the self-interested OEM may choose a suboptimal output price. The firms thus create a contract stipulating three factors: the OEM's output price, a fraction of the supplier's capacity costs to be paid by the OEM, and a fixed rebate paid from the supplier to the OEM. These factors can be chosen so that the efficient level of capacity is created, and both the supplier's and OEM's profits increase. Sensitivity analysis is then conducted to indicate the industry characteristics that make this type of contract most effective.

Online publication date: Fri, 28-Jan-2011

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Integrated Supply Management (IJISM):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com