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Procurement Contracts Under Asymmetric Yield Information

Asymmetric information among supply chain is a normal problem in supply chain risk management literatures. But few of them concern asymmetry of supply risk information while actually supplier does tend to hold some private knowledge about supply uncertainty. In this paper, we investigate buyer's procurement contracts design when yield uncertainty is privately known by supplier. With a given contract structure where the payment depends partly on order quantity and partly on yield quantity, we formulate corresponding game models under complete and asymmetric information based on a single-supplier-single-buyer supply chain system and find the supplier has motivation to reporting a lower yield rate under asymmetric environment. When the supplier's yield rate is two-point distributed, we derive the optimal procurement contracts and prove that buyer will provide either Shut-Down Contracts or Pooling Contracts. Moreover, compared with complete information, buyer's profit is always declined by the asymmetry while supplier does not certainly benefit: for a supplier with higher yield rate, private information is always an advantage, but for a supplier with lower yield rate, such asymmetry may hurt her profit on the contrary. It means sharing information sometimes might be a win-win policy for supplier with lower yield rate.