Profit allocation mechanism of supply chain with bilateral asymmetric costs information

Abstract

This paper investigates the problem of profit allocation under bilateral asymmetric information environment.More specifically, we consider a supply chain consisting of one risk-neural manufacturer and one risk-neural retailer for an innovation product. In order to facilitate the cooperation, the manufacturer and the retailer commit to share their private information under a commitment contract based on the AGV (d’Aspremont and Gerard-Varet) mechanism. We analyze the relationship between the expected information rents and the realized supply chain profit, and discuss the allocation rule implementation under three different cases by introducing the R-S-K negotiation. We show that the commitment contract can achieve truthful information revealing and allocate the ex post profit reasonably. Finally, one numerical example is presented to explain the main results.