Journal
MANAGEMENT SCIENCE
Volume 56, Issue 9, Pages 1584-1598Publisher
INFORMS
DOI: 10.1287/mnsc.1100.1204
Keywords
supply chain contracting; asymmetric information; forecasting
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This paper considers a manufacturer selling to a newsvendor retailer that possesses superior demand-forecast information. We show that the manufacturer's expected profit is convex in the retailer's forecasting accuracy: The manufacturer benefits from selling to a better-forecasting retailer if and only if the retailer is already a good forecaster. If the retailer has poor forecasting capabilities, then the manufacturer is hurt as the retailer's forecasting capability improves. More generally, the manufacturer tends to be hurt (benefit) by improved retailer forecasting capabilities if the product economics are lucrative (poor). Finally, the optimal procurement contract is a quantity discount contract.
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