Title: Optimal contract design for outsourcing: pricing and quality decisions
Authors: Xiaowei Zhu, Samar K. Mukhopadhyay
Addresses: College of Business and Public Affairs, West Chester University of Pennsylvania, West Chester, PA 19383, USA. ' Graduate School of Business, Sungkyunkwan University, 53 Myungryun-dong 3-ga, Jongro-gu, Seoul 110-745, Korea
Abstract: Outsourcing is currently being used as an important strategy for many companies in the USA to focus on the core competency, reduce cost and increase profit. We consider a company (buyer) outsourcing a part of her service. One of the main concerns of outsourcing is the quality of service. We use a game theoretic model to design optimal contracts between the buyer and the service supplier under the full information and the asymmetric information. In both cases, we find the optimum outsourcing quantity, quality, price and a cut-off point that will make the contract unsuitable.
Keywords: contract design; game theory; outsourcing; quality; revenue management; pricing; service suppliers.
International Journal of Revenue Management, 2009 Vol.3 No.2, pp.197 - 217
Published online: 27 Mar 2009 *
Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article