On Single-stage Buy-back Contract with Asymmetric Information

Abstract

This paper analyzes how a supplier manages the retailer's ordering quantity through a buy-back contract to maximize his profit when the demand information is asymmetric between the supplier and retailer. The retailer acts as a classical newsvendor to determine his order. And the supplier has no information on the demand mode, and only knows about the probability about what the demand mode is. In this setting, the traditional buy-back contract fails to coordinate the supply chain. In this paper, we put forward a buy-back contract combination, where the supplier can provide a series of buy-back contract corresponding to the demand modes. It is found that the contract combination can achieve the same effect as the traditional buy-back contract in the symmetric information, and the supplier's profit depends on some market conditions, such as the demand variance, the number of the retailer and the external wholesale price.