Quantity discounts in single-period supply contracts with asymmetric demand information

Abstract

Abstract We investigate how a supplier can use a quantity discount schedule to influence the stocking decisions of a downstream buyer that faces a single period of stochastic demand. In contrast to much of the work that has been done on single-period supply contracts, we assume that there are no interactions between the supplier and the buyer after demand information is revealed and that the buyer has better information about the distribution of demand than does the supplier. We characterize the structure of the optimal discount schedule for both all-unit and incremental discounts and show that the supplier can earn larger profits with an all-unit discount. Keywords: Supply chain managementchannel coordinationchannels of distributionasymmetric information Acknowledgement We are grateful to the D.E., the A.E., and two anonymous referees for the constructive comments that they provided on previous versions of this manuscript. This research was supported in part by the University of Athens Research Committee via the Kapodistrias program.