Optimal reservation pricing strategy for a fashion supply chain with forecast update and asymmetric cost information

Danqin Yang, Tiaojun Xiao, Tsan Ming Choi, Edwin Tai Chiu Cheng

Research output: Journal article publicationJournal articleAcademic researchpeer-review

21 Citations (Scopus)

Abstract

We address the reservation pricing problem for a two-echelon fashion supply chain in which the downstream manufacturer with private information on its operations cost (low or high type) reserves the capacity for a critical component from the upstream supplier before placing the final order. We consider the case when the demand forecast is partially updated. We find that a novel menu of reservation contracts containing the unit reservation fee with reservation quantity and final order could induce the manufacturer to reveal its operations cost information truthfully. We also show that the supplier should require less capacity reservation and charge a lower unit reservation fee if it has asymmetric information about the manufacturer’s operations cost. Finally, we analyse the effects of forecast update, and our results indicate that: (i) the supplier benefits from forecast update because the optimal reservation pricing strategy is designed to reveal the true information and meanwhile induce a higher capacity reservation; and (ii) a greater amount of forecast update decreases the supply chain deficit and increases the supplier’s agency cost.
Original languageEnglish
Pages (from-to)1960-1981
Number of pages22
JournalInternational Journal of Production Research
Volume56
Issue number5
DOIs
Publication statusPublished - 4 Mar 2018

Keywords

  • asymmetric information
  • capacity reservation
  • forecast update
  • pricing
  • revelation mechanism
  • supply chain management

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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