Download Analysis of Innovative Perishable Goods Supply Chain Under Information Asymmetry

Analysis of Innovative Perishable Goods Supply Chain Under
Information Asymmetry
LIAO Jiaxu, ZHANG Yuan
School of Economics and Trade, Hunan University, Changsha, P.R. China, 410079
Abstract: In this paper, we classify and define the innovative perishable goods, then describe its supply
chain structure as well. We establish a model of supply chain for innovative perishable goods, which
will be studied in this paper. Then we get the manufacture’s optimal price strategy and the retailer’s
optimal order strategy under two different situations, including asymmetric demand information and free
sharing of demand information, which are represented in the model.
Keywords: Logistics, Supply Chain, Perishable Goods, Asymmetric Information, Game Theory
1 Introduction
The term perishable goods is related to obvious features involving long production lead time, short sales
cycle, low final salvage value, uncertain demand, etc., and these features are caused by characteristics of
the product itself or preferences of target consumer group. Along with the development of technology
and increased market competition, more and more electronics and information products possess the
characteristics of perishable goods. According to different ways out of the market, perishable goods can
be classified as traditional perishable goods and innovative perishable goods.
Most types of innovative perishable goods are transformed by the innovative products. As the rapid
development of technology and personalized consumers give rise to product upgrading faster and faster,
the products’ life cycles are greatly shorten and they are forced to withdraw from the market before they
have no value any more, these products are attributed to innovative perishable goods. Innovative
perishable goods have both innovative and perishable features. Owing to the difficulties in determining
consumer’s attitude to new products, lacking of consumption data and rapid product upgrading, it’s
difficult to forecast product demand, thus enterprises face greater risk of market uncertainty.
The process of innovative perishable goods supply chain is generally composed of several parts: demand
forecast, product research and development, production, product sales and disposal of inventory.
Demand forecast indicates that retailers or professional market investigation and study team inquire into
consumers’ individual requirements for products; this is one only the beginning of production and
marketing process but the basis for manufactures’ product selection. Product research and development
means that, according to the personalized needs of the market, manufactures or research institutions
develop products that conform to requirements. Production indicates the process of manufacturing
products on the basis of R & D results. Product sales can be divided into two stages: one is that
manufactures offer products to retailers; the other is that retailers sell the products to consumers.
Disposal of inventory is an important link in the supply chain as a result of upgrading, innovative
perishable goods are forced to withdraw from market without losing value, therefore, they have high
salvage value.
，
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Order
Capacity Preparation
Raw Materials Supplier
R&D
Market Forecast
Demand Information
Production
Production Sales
Consumer Market
Manufactured goods
Manufactured goods
Raw Materials
Manufacturer
Disposal Of Inventory
Retailer
Information Flow
Goods Flow
Figure 1: Flow chart of innovative perishable goods supply chain
The process of innovative perishable goods supply chain is similar to general products’. However, due
to innovative perishable goods’ innovative and perishable character, its supply chain has some
specificity.
(1) Supply chain raises a high requirement on quick response capability. Innovative perishable goods is
mainly used to meet people’s individual needs, the market leader always gets a higher marginal
revenue while the market follower falls into fierce market competition, even get large loss because
of products have upgraded. Therefore, the innovative perishable goods supply chain must possess
high quick response capability, rapidly complete the development and production process after
discovering market demand, then market the products. Consequently, this supply chain raises higher
needs on cooperation and coordination among members.
(2) It’s difficult to predict the demand information of a supply chain. In the wake of the growing
consumer purchasing power and their increasingly evident requirements on diversity and innovation
of the products, gradually, large-scale production with which enterprises are familiar
can not
meet the diverse market demands .The need for competition makes producers have to face the
uncertainty of demand while serve for smaller market segments, the demand for market segments
scatters flexibly and uncertainly. In addition, innovative perishable product’s service life is much
larger than its life cycle. The Home Appliances safe useful life rules sets out the service life of
some innovative perishable goods, such as 6 years of personal computer,9 years of TV and so on,
but in the market, the life cycle of the corresponding product is only one year or two years. Whether
consumers are willing to buy these upgrading products or not makes market demand for products
with greater uncertainty.
(3) Supply chain members have asymmetric information. As producers and sellers respectively,
manufactures and retailers have great differences in the degree of contacting with consumers. Take
Sunning Appliance supply chain for example, as retailers, SuNing Appliance has 800 stores in more
than 200 cities in the country, while its upstream manufactures only have several factories in the
country. Downstream retailers keep in touch with consumers frequently, so they have a better
＂
＂
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understanding of market demands. In addition, belonging to the perishable goods, innovative
perishable goods has its own specificity. Changing needs of traditional perishable goods tend to be
stable, such as fresh material, airline tickets, their demands change regularly, yet innovative
perishable goods update quickly and lack of consumer information that can be referenced, the
manufactures can not master market information by long-term observations. Therefore, suppliers at
all levels in innovative perishable goods supply chain have asymmetric information.
2 Literature review
H.T. Zhang (2002) studies the incentive factors of vertical information sharing among internal
members in a single-supply chain. In his model, there are only one manufacture but several retailers.
The retailers have private information and carry on a Cournot quantity competition. The study found
that longitudinal information sharing brings about two effects: direct effect, which is caused by the
changes in strategies of members whose information is shared; indirect effect, which is caused by the
strategic changes of competitors. Both changes will affect the income distribution among enterprises.
The results show that indirect effect will lower the initiative of sharing market demand information
between retailer and manufacture; on the contrary, it promotes both retailer and manufacture’s initiative
of sharing cost information. Besides, direct effect always lower retailer and manufacture’s initiative of
sharing. Under the situation where voluntary information sharing is impossible, the article analyzes not
only the information exchanging conditions between the manufacture and retailer but also the price
needed when information exchanges smoothly.
Fishing and E.P Robinson (2002) look back literatures on supply chain coordination and information
sharing; they call coordinated approach the “coordination mechanism”. Traditionally coordination
mechanism is mainly based on centralized decision-making, has a vertical or horizontal integration (i.e.
change the supply chain structure),as well as strengthen every party’s cooperation and trust (do not
change the structure of the supply chain, such as vendor managed inventory).Under consideration of
the complete sharing of information and fixed demand function case, Jian-lin Chen studies coordination
issues of supply chain which is consisted of suppliers, transporters and buyers. The paper firstly
establishes a independent decision-making model and gets the optimal pricing and the maximum benefit
of supply chain members; Afterwards builds a centralized decision-making model to achieve this
centralized decision-making through designing a specific distribution, furthermore it proves that total
supply chain benefits under centralized decision-making case is greater than that under independent
decision-making case. Considering that it’s difficult for firms to implement centralized decision-making,
the new coordination mechanism is based on decentralized decision-making, so at the same time of
achieving reasonable distribution of benefits, guarantee effective incentives to members of supply chain
in order to make overall income in decentralized decision-making supply chain equal to incomes under
centralized decision-making case. That is, under the premise of decentralized decision-making of supply
chain members, by re-building costs and benefits to make their goals in line with the system goals.
Scholars launch a large number of studies for new coordination, which mainly falls into three categories:
risk-sharing coordination mechanism, benefit-sharing coordination mechanism and price coordination
mechanism.
B.Pasternack is the first scholar who studies the optimal pricing and returns issues of short life cycles
product with randomized demand. He points out that neither all returns at a full price (i.e. repurchase
retailers’ all remaining stock at a wholesale price) nor no returns is system optimization, but the
intermediate return policy such as part of the returns at full price or full returns at part of the price, can
coordinate the supply chain.H.Emmons and S.Gilbcre’s study confirmed this conclusion.E.Kandel
expands Pasternack’s model and introduces the price-sensitive stochastic demand, he indicates that no
protection of retail price, that is returns policy can not coordinate supply chain when manufacture is not
allowed to set retail price. Under consideration of the short life circle products with price elasticity of
the stochastic demand, Xian-hao Xu and Bai-yun Yuan (2007) study the buy-back contract strategies of
short life cycle products under a supply chain circumstance. They also analyze the retailer and
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manufacture’s optimal decisions under no coordination case and under buy-back contract coordination
case respectively, derive that the retailer’s optimal order quantity and optima retail price as well as the
range of supplier’s optima buy-back price under buyback contract. Through numerical analysis, under
the buyback contract, they verify that the optimal decisions for both parties can make the supply chain’s
overall income reach to an optimal state under centralized control.
Revenue sharing has been successfully used in the video rental industry.J.H.Mrotimers provides a
detailed economic explanation about that benefit-sharing contracts bring an effect on the video rental
business, he finds that supply chain benefits can be increased by 7% by using revenue sharing
contract.G.Cachon and M.Lariviere consider that two possible factors may lead revenue sharing contract
to invalid: First, the management costs of implementing revenue sharing contract are very high; Second,
the implementation of revenue sharing contract may lower the vendor’s marketing initiative.
Simultaneously, they also confirm that when demand is random and is relevant to price, revenue sharing
contract can still coordinate with supply chain. Ju-hong Chen et al. consider the situation that final sales
price is endogenous variable and surplus salvage value is related to production cost, and then establish a
supply chain revenue sharing coordination model, given the formula of the retailer’s optimal
decision-making behavior and parameter range. Finally, they carry out numerical analysis to verify the
effectiveness of supply chain revenue sharing in the supply chain coordination. Xiao-feng Shao and
Jian-hua Ji (2008) study the coordination issue between manufacture’s and supplier’s product pricing
and ability to design, which is in a circumstance where demand is uncertain and influenced by the
prices. Analyzing when the production ability of manufacture is restricted and in the condition that the
manufacture needs to pay higher cost for key parts obtained from external sources, they compare the
pricing and ability to plan strategy in an integrated supply chain with that in a independent
decision-making supply chain respectively. Still, they propose a compensation contract which can
effectively coordinate the decision-making behavior between manufacture and supplier. Finally, they
conduct numerical analysis and show the effectiveness of compensation contract.
Banerjee (1996) develop a joint economic number model and get the optimal production and order
quantity. In this model, there is a supply chain consisted of a single supplier and a single manufacture
while the manufacture is the leader. He finds in many cases, the model benefits supplier and increases
vendor’s total inventory costs, so when adopting optimal joint quantity, supplier may need to use a
certain amount of quantity discount or revenue sharing to compensate for the increased inventory costs
of buyers. Goyal.S.K (2002) expand Baneejee’s model by assume of release order act, the conclusion
indicates that economical production quantities should be integer times of the purchase quantities ,gives
the formula of buyer’s economical order quantity under an integer multiple of n and gives the conditions
which the best n value should satisfy.
Learning from these supply chain coordination literature above, academia generally think that the main
problem of supply chain coordination is not technology but how to make parties of supply chain
participated in supply chain coordination. The literature mainly study how to conduct supply chain
coordination through mechanism design, but most of the research literature study whether a certain
coordination mechanism can conduct supply chain effectively. In reality several coordination
mechanisms are often available, mechanism design in not only to design mechanisms but need to select
the optimal mechanism.
In order to study conveniently, this innovative perishable goods supply chain has only two parts,
perishable goods manufacturers and retailers. As shown in the dashed box in Figure 1,the innovative
perishable goods manufacturer is responsible for product development and production, then wholesales
the products to retailer, the whole process of innovative perishable goods supply chain focuses on one
manufacturer; Innovative perishable goods retailer is independently responsible for market-demand
information investigation, product sales and disposal of inventory.
3 Modeling and analysis of innovative perishable goods supply chain under
asymmetric information
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This section establishes two decentralized decision-making models and solves their equilibrium
solutions. The first is a realistic model; it assumes that the retailer closed to the market has accurate
information while the manufacturer does not know the market-demand information, i.e. asymmetric
information. The retailer can solve his optimal order quantity by his market information and wholesale
price set by the manufacturer. The second is a manufacturer-ideal model; the manufacturer and retailer
have the same demand information which is shared without costs. Every party in the supply chain makes
decisions on the basis of the known market-demand information.
3.1 Problem description and notations
This paper mainly studies the coordination between upstream and downstream businesses of supply
chain. Therefore, considering a two-stage innovative perishable goods supply chain with a single
manufacturer for production and a single retailer for sales, the upstream enterprise firstly set the price,
i.e. as the leader enterprise, the manufacturer need to make his pricing strategy in advance while the
retailer, as a follower, has to decide his optimal quantity by the wholesale price set by the manufacturer
or wholesale price discount and forecast information of market-demand. Considering the maximization
of individual interests, both sides of the game make decisions on the basis of information controlled by
themselves. Obviously, such a game mechanism confirms to Stackelberg dynamic game. Product market
is the market whose demand information can not be predicted accurately. Though the retailer can not
accurately forecast the market-demand information, he is closer to the market and can forecast
market-demand distribution function. As manufacturer is far away from the market, he cannot forecast
market demand .Therefore, the demand distribution function is private information of the retailer and the
information of both parties is asymmetric. The manufacturer can know the retailer’s accurate demand
forecasted information only under conditions of information sharing. The manufacturer and retailer are
risk-neutral. When setting the price and order quantity, they just consider the level of expected return.
Simultaneously, the manufacturer has enough production capacity to meet the retailer’s order quantity.
The game order and conditions of both parties in the supply chain are shown in Fig.2.This paper
establishes a retailer-order model under different pricing strategies of an innovative perishable goods
manufacturer, some of the notations used in the model are defined as follows.
p
Retail price of unit product
s
Retailer’s unit loss caused by insufficient orders
kr
Final salvage value of retailer’s unsold product
Q
w
Retailer’s order quantity
Manufacturer’s wholesale price of unit product
cm
Manufacturer’s unit cost of production
∏r
Retailer’s revenue
∏m
The revenue of the manufacturer
∏j
x
f (x )
The density function of x , f ( x ) > 0
F (x)
The distribution function of x , F (x) is twice differentiable
The total revenue of the supply chain
Stochastic market demand
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Consumer market
W
The manufacturer
of
innovative
perishable goods
The retailer of
innovative
perishable goods
Manufacturer
p
Stochastic demand
Conforms to the
distribution of
Retailer
functions
x
F(x), f (x)
Q
S
Production cost
cm
a
Loss for out of
stock
b
kr
Production
salvage value
Minimum market
demand
Maximum market
capacity
Figure2 : Game sequence diagram of the supply chain model
This model does not consider the manufacturer's production preparation costs and transportation costs as
well as the retailer's inventory cost and cost of sales. As the model needs, assuming the random market
a , b , a denotes the minimum market
demand x meets the uniform distribution in the range
【
】
demand, it’s the manifestation of market rigidity; b denotes the extensible limit capacity of the
market, its value is affected by the retailer’s promotional efforts. Parameters need to satisfy the
following constraints b > a ensures the market a buyer's market and it’s necessary for both parties in
the supply chain to improve the market demand by efforts. p > w Ensures the retailer’s profits got
，
from the sales process. w > cm Ensures the manufacturer’s profits and the existence of the supply
chain. cm > k r , for the whole supply chain, if product salvage value is greater than production cost,
the product which brings profits once produced and no matter sold or not is an unlimited production, this
case does not meet the real market situation; w − kr > s , if over-order loss is less than out of stock loss,
the retailer will order maximally, so the loss for out of stock will not appear. This model is an extended
newsboy model that satisfies the Stackelberg dynamic game.
3.2 Model of asymmetric demand information
Manufacturer can accurately predict the market demand is one possibility of symmetric information. In
the market of the innovative perishable goods, consumers are widespread but their purchases lack of
regularity, so it’s difficult for manufacturer who contacts with consumers indirectly to get accurate
market information. Another possibility is that retailers share their forecasts. Retailers sell the products
to consumers directly, so they have more opportunities to contact with consumers and understand the
consumers’ demand for products. In the random demand market, retailers can forecast the market
demand information more accurately than manufacturers. In an independent decision-making game
mechanism, retailers should consider their profits when they decide whether pass information or not,
therefore they may not transmit private information. Information symmetry is an ideal state and is
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difficulty to achieve while information asymmetry is widespread in the market. Asymmetric demand
information model assumes that manufacturers are unable to know the market demand because of away
from consumers, simultaneously the independent decision-making game mechanism makes retailers
unwilling to share market information with manufacturers, so manufacturers do not know the
distribution function of the market demand. Retailers still know the distribution function and probability
distribution of the random market demand x , these information are owned privately by the retailers, so
the demand information in the supply chain is asymmetric.
In the model, the main market behavior of the innovative perishable goods retailers is to select
quantities. Having controlled the distribution function of the random market demand x and the
wholesale price set by the manufacturers, so retailers can make the optimal order decision. Now, the
revenue function of the retailers is:
∏adr = pQx
( , )− −wadQ−s(x−Q,0)+ +kr(Q−x,0)+(1)
The meaning of function (1) is: For the set wholesale price wad , the retailer’s profit is mainly influenced
by the order quantity and random market demand. Regardless of the value of the order quantity Q , sales
can only be the lesser between Q and the stochastic demand x ; The paid ordering costs is fixed; If
there is a demand not met, out of stock losses is the margin of order quantity and marked demand, per
unit of out of stock loss is s ; If the order quantity is greater than market demand, there exists unit stock
salvage value. The following meaning of retailer’s revenue function is identical to (1) except for the
wholesale price w .
Owing to the uncertain market demand, the retailer’s profit can only be expressed as expected return
form. Because
Q Q < x
x − Q x − Q > 0
(Q , x ) − = min(Q , x ) = 
( x − Q , 0) + = max( x − Q , 0) = 
x−Q < 0
x Q> x
 0
Q − x
(Q − x , 0 ) + = m a x (Q − x , 0 ) = 
 0
Q − x > 0
Q − x < 0
Therefore, we can get the retailer’s expected return by solving the mathematical expectation of
Retailer’s profit:
Ε (∏
r
ad
) = p[Q −
∫
Q
a
F ( x ) d x ] − w ad Q − s[b − Q −
∫
b
Q
F ( x)dx] + kr
∫
Q
a
F ( x )d x
(2)
According to the known wholesale price and market forecasts, the retailer can still maximize his profit
*
function (2) and determine the optimal order quantity Qad .
∂Ε(∏rad )
= p[1− F (Q)] − wad − s[ F (Q) −1] + kr F (Q) = ( p + s − wad ) − ( p + s − kr ) F (Q)
∂Q
p + s − w ad
∂Ε ( ∏ ra d )
,
we
can
get
F (Q ) =
=0
∂Q
p + s − k r
*
Qad
= F −1 (
Let
,
so
p + s − wad
)
p + s − kr
(3) The main behavior of manufacturer is pricing. Because of information asymmetry, knowing nothing
of the distribution function of market demand and unable to realize how the retailer to decide his order
quantity, so the manufacturer neither can solve the optimal wholesale price wad nor can maximize his
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profits. Under the condition of information asymmetry, the manufacturer of innovative perishable goods
sets his wholesale price wad on the basis of retailer’s unit price and manufacturing cost, the
wholesale price wad ranges in ( cm ,
model is
p ).The manufacturer’s profit in the asymmetric information
m*
∏ad
= (wad − cm)*Qad* .
3.3 Free information sharing model
As an independent decision-making retailer, the choice of information sharing depends on his own
profits, if information sharing can increase his profits, the retailer would like to share his private
information. The model of free information sharing considers one manufacturer and one retailer who
conduct pricing and order game in the random-demand market. This model assumes that parties in the
supply chain have completely symmetrical information, i.e. the retailer and manufacturer share the
market demand information and the manufacturer can obtain the same market information as the
retailer’s, but he needn’t to pay for extra informational cost, which equals that the retailer freely share
his private information. Both of them know the random market demand x uniformly distributes in
[ a , b ], distribution function is F (x) ,its density function is f (x ) .Both the manufacturer and retailer
make decisions according to their profit maximization. This symmetric demand information model
(short for sd) is an ideal model to the manufacturer.
In the model, the retailer of innovative perishable goods is the follower, whose market behavior is to
decide his optimal order by his controlled market information as well as the wholesale price set by the
manufacturer, and then maximize his profits. For a given wholesale price wsd , the retailer’s profits
function is:
∏rsd = p(Q, x)− −wsdQ−s(x−Q,0)+ +kr(Q−x,0)+
(4)
Solving the mathematical expectation of retailer’s profits, we get the retailer’s expected profit equation
(5):
Q
b
Q
a
Q
a
Ε(∏sdr ) = p[Q − ∫ F (x)dx] − wsd Q − s[b − Q − ∫ F (x)dx] + kr ∫ F (x)dx
（ 5）
The retailer can maximize his expected profits by selecting the optimal order quantity Qsd , and then
solve the first derivative of the equation (5) with respect to Q :
∂Ε (∏ rsd )
= p[1 − F (Q )] − w sd − s[ F (Q ) − 1] + k r F (Q )
∂Q
= ( p + s − w) − ( p + s − kr )F(Q)
Let
∂Ε(∏rsd )
=0
∂Q
,
we
get
(6)
F (Q) =
p + s − wsd
p + s − kr
,
so
Qsd* = F−1(
p + s − wsd
)
p + s − kr
(7)
The retailer’s optimal order quantity is solved under a known condition, so the retailer’s optimal pricing
is a discretion mechanism based on the manufacturer’s pricing behavior. The manufacturer can
anticipate that the retailer would select order quantity on the basis of his wholesale price and market
demand. Simultaneously, the manufacturer also owns the distribution information of market demand, so
*
he can solve the optimal wholesale price wsd according to backward induction.
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In the model, the manufacturer of innovative perishable goods clearly knows the way chosen by the
retailer for his optimal order quantity; he can make pricing decisions to maximize benefits. We can write
the manufacturer’s profits function:
m
∏sd
= (wsd − cm )*Qsd*
(8)
By selecting the optimal wholesale price wsd to maximize the manufacturer’s expected profits, then
solve the first derivative of function (8) with respect to wsd :
m
∂ ∏ sd
∂Q
p + s − wsd
p + s − wsd
wsd − cm
) + ( w − cm ) sd = F −1 (
)−
= F −1 (
p + s − wsd
∂wsd
∂wsd
p + s − kr
p + s − kr
( p + s − kr ) f (
)
p + s − kr
(9)
Since the stochastic demand x uniformly distributes in [ a ,
F(x) =
x −a
,
b−a
f (x) =
b ], we can get the condition one:
1
b −a
According to the above condition, we can get:
F−1(x) =(b−a)x+a
(10)
Substituting the condition one and equation (10) into (9), we can get:
∂∏sdm
p + s − wsd
w −c
p + s − 2wsd + cm
= (b − a)*
+ a −(b − a)* sd m = (b − a)
+a
∂wsd
p + s − kr
p + s − kr
p + s − kr
(11)
∂∏sdm
= 0 , then we solve the optimal wholesale price w*sd :
Let
∂w
wsd* =
b( p + s + cm) − a(cm + kr )
2(b − a)
(12)
*
Substituting the optimal wholesale price wsd into equation (8):
Qsd* =
b( p + s − cm ) + a(cm − kr )
2( p + s − kr )
(13)
4 Comparison of Asymmetric and Symmetric Information of Innovative
Perishable Goods Supply Chain
The past literatures imply that using information sharing can improve the efficiency of supply chain, but
information asymmetric is widespread in the real market. The reasons for information asymmetric,
except for the technology problem of information sharing, may be the restriction of the member’s
maximum profit decision-making in the supply chain. The following we analyze the manufacturer and
retailer’s market behavior respectively in the symmetric and asymmetric demand information supply
chain, theses compare their market performances and find out the reasons for the asymmetric demand
information of innovative perishable goods.
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4.1 The market behaviors of supply chain members
In the market, the manufacturer’s main market behavior is pricing while the retailer selects his order
quantity according to the price set by manufacturer. In the asymmetric-information model, the wholesale
price wad values in ( cm , p ), in order to compare conveniently, although the following hypothesis,
that wad is a mean value wholesale price ranged in ( cm , p ), does not meet the reality. However, it
does not mean that manufacturer necessarily select the price but explains an intermediate situation of
manufacturer’s price selecting. If wholesale price under symmetric information is greater than average
wholesale price, it proves that that the wholesale price in a symmetric demand information model is
greater than in an asymmetric model is a high probability event. A risk-neutral retailer is inclined to
large probability event. In the final of this section, we use numerical analysis to further explain that
hidden information is advantageous to retailer.
wad = Ε(w) =
p + cm
2
(14)
Substitute the average wholesale price wad set by the manufacturer into (13), we have:
Qad* = F−1(
p + s − wad b( p + s − wad ) + a(wad −kr ) b( p + 2s −cm) + a( p + cm −2kr )
)=
=
( p + s − kr )
2( p + s −kr )
p + s − kr
(15)
Changes of pricing behavior:
wsd* −wad =
b( p+s +cm) −a(cm +kr ) p+cm bs +a(p−kr )
−
=
>0
2(b−a)
2
2(b−a)
(16)
Changes of ordering behavior:
Qsd* − Qad* =
b( p + s − cm ) + a(cm − kr ) b( p + 2s − cm ) + a( p + cm − 2kr )
−
2( p + s − kr )
2( p + s − kr )
=
−bs − a( p − kr )
<0
2( p + s − kr )
(17)
Conclusion 1: Asymmetric demand information will make the manufacturer unable to calculate the
optimal wholesale price, the probability of that wholesale price selected is lower than wholesale price
under symmetric information is high, and the retailer’s order quantity under demand information
asymmetry is improved with the drop of wholesale price.
4.2 The supply chain’s market performances
In reality, whether the private information owner selects information sharing is one of the market
behaviors. In the decentralized decision-making industrial organization, the main factor affecting
enterprise’s market behavior is market performance, so in an innovative perishable goods supply chain,
the retailer’s behavior of freely share his private information depends on the changes in performance
after sharing.
a) Enterprise’s market performance
In the independent decision-making game mechanism, retailer’s decision-making is based on the profits
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maximization. As the follower in the Stackelberg dynamic game, the retailer’s optimal decision-making
is formulated on both the wholesale price set by manufacturer and the market demand. In the two
above-mentioned models, the retailer grasps the information for market demand’s distribution
probability, this represents that the retailer has a corresponding optimal order decision-making in
whichever situation. Whether the retailer is willing to share his private information depends on whether
information sharing can improve his market performance.
Both in the symmetric demand information model and asymmetric demand information model, the
retailer’s expected profits can be expressed by
Q
b
Q
a
Q
a
Ε(∏r ) = p[Q − ∫ F(x)dx] − wQ − s[b − Q − ∫ F(x)dx] + kr ∫ F( x)dx
∂Ε(Π r )
∂Q
∂Q
∂Q
∂Q ∂Q
∂Q
= p[
− F (Q )* ] − (Q + w * ) − s[ F (Q)
−
] + k r * F (Q )
∂w
∂w
∂w
∂w
∂w ∂w
∂w
= −(b − a)*
p+s−w
−a <0
p + s − kr
(18)
From the solution we can judge that the retailer’s expected profits Ε(Π ) has a negative correlation
r
with the wholesale price w,the retailer’s profits declines with the wholesale price’s ascent. Because of
the wholesale price in symmetric demand information is higher than it in the asymmetric demand
information model, we infer Ε(Π sd ) < Ε( Π ad ) .
r*
r*
Conclusion Two: Ε(Π sd ) < Ε( Π ad ) , free information sharing makes retailer’s market performance
decreased, so the retailer not only won’t share information freely but necessarily hide his private
information.
As the leader in the Stackelberg dynamic game, the manufacturer of innovative perishable goods needs
to set his wholesale price firstly while his optimal pricing decision-making, which is solved through
backward induction method, is based on having understood how the retailer conducts his order
decision-making. Information asymmetry makes manufacturer unable to forecast retailer’s market
behavior, therefore he can not select the optimal price decision-making and can barely select between
cost and market-price. According to the hypothesis of average price, the wholesale price in information
asymmetry model is lower than information symmetry model while the order quantity is opposite.
Whether the increased order quantity can bring about higher market performance becomes crucial to
whether the manufacturer requires information sharing or not. The profits difference of manufacturer’s
profits in different situations is:
r*
r*
*
*
*
m
m*
m*
∆Πsd
−ad = Πsd −Πad = (wsd − cm )* Qsd − (wad − cm )* Qad =
(bs + ap − akr )2
>0
4(b − a)( p + s − kr )
(19)
From the above solution, we can get: ∆Π sd − ad > 0,
m
Π msd* > Π mad*
Conclusion Three: Information asymmetry makes manufacturer unable to make profit maximization
decisions, under hypothesis of average price, the manufacturer’s market performance would drop. As the
leader of innovative perishable goods supply chain, the manufacturer has motivations to design varieties
of incentives in order to induce the retailers to share their private information.
b) Supply chain performance analysis
Previously we prove that free information sharing can improve the manufacturer’s market performance
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and the manufacturer hope to obtain the market demand information; While the retailer’s market
performance declines under free information sharing, that makes the supply chain ‘s market
performance uncertain under demand information symmetry. The supply chain’s market performance is
a key factor determining whether free information sharing in an independent decision-making supply
chain can play a coordination role.
r*
∏sdj* = ∏sd
+∏msd* = p[Qsd* − ∫
*
Qsd
a
b
F ( x)dx] − cmQsd* − s[b − Qsd* − ∫ * F ( x)dx] + kr ∫
Qsd
*
Qsd
a
F ( x)dx
(20)
*
r*
m*
∏adj* = ∏ad
+∏ad
= p[Qad
−∫
*
Qad
a
b
*
*
F ( x)dx] − cmQad
− s[b − Qad
− ∫ * F ( x)dx] + kr ∫
Qad
*
Qad
a
F ( x)dx
(21)
*
Qad
*
Qsd
b
b
a
a
Qad
Qsd
∆Πadj*−sd = ( p + s −cm)(Qad* −Qsd* ) −( p −kr )(∫ F(x)dx − ∫ F(x)dx) + s(∫ * F(x)dx − ∫ * F(x)dx)
*
Qad
= (p + s −cm)(Q −Q ) −(p + s −kr )∫ * F(x)dx
*
ad
*
sd
Qsd
(22)
By solving equation (22), we get:
∆Π
j*
ad −sd
2(b − a)( p − cm )(bs + ap − ak ) + (bs + ap − ak )2
=
8(b − a)( p + s − kr )
(23)
According to the parameter constraints: b − a > 0, p − kr > 0, p + s − kr > 0, p − cm > 0 , we can
solve equation (23) is greater than zero, therefore ∆Π ad − sd > 0 , Π ad > Π sd .
j*
j*
j*
Conclusion Four: That supply chain’s total profits in information symmetry model is less than in
information asymmetry model implies that free information sharing leads to the supply chain’s
performance drops, therefore, free information sharing can not coordinate decentralized
decision-making supply chain.
Literatures on supply chain coordination indicate that information sharing is important means of
improving the efficiency of supply chain. There are two main reasons for departure from the traditional
results: One is decentralized decision-making supply chain. The past literatures on supply chain usually
assume that information sharing leads to centralized decision-making while this paper’s analysis on
supply chain is always decentralized decision-making. In an industrial organization, the advantages and
disadvantages of decentralized decision-making depend on the controlling degree to information of the
makers. The wholesale price set by the dominant manufacturer determines both market supply quantity
and market performance, if under condition of sharing the retailer’s market demand information free of
charge, the manufacturer considers promising the retailer’s profits is non-zero and occupies the market
profits maximally by setting optimal wholesale price. The retailer selects his optimal order quantity on
the basis of manufacturer’s optimal price, the optimal pricing behavior leading to high wholesale price
inevitably brings about decreasing order quantity, then the market demand can not be met and supply
chain’s performance declines. The other is not considering the costs for capacity preparation. This
paper’s model assumes that manufacturer has enough production capacity to meet the retailer’s order
requirement but does not consider the manufacturer’s capacity preparation costs. The manufacturer is
urgent to know market demand information for the purpose of setting optimal price and reasonably
463
preparing capacity. The model ignores the capacity preparation costs, thus underestimates the loss in
information asymmetry supply chain virtually.
5 Conclusion
In this paper, we classify and define the innovative perishable goods, then describe its supply chain
structure as well. We establish a model of supply chain for innovative perishable goods, which shows
the two cases of demand information asymmetry and free information sharing. Then we solve the
manufacture’s optimal price decision-making and the retailer’s optimal order decision-making of
demand information asymmetry supply chain and free demand-information sharing supply chain
respectively. By assuming manufacturer’s selection of average price, we compare the changes in market
behavior and performance of the manufacturer and retailer in this two models, then we get conclusions
that free information sharing makes retailer’s market performance declined while manufacturer’s market
performance improved; By further compare the supply chain’s total profits in two models, we get
conclusions that free information sharing declines the supply chain’s market performance and the
retailer’s hiding his private information is reasonable behavior. Thus elicit Chapter Three: the
manufacturer of innovative perishable goods needs to design a reasonable mechanism in order to impel
the retailer to transmit his private information.
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