The Economic Foundations of Supply Chain Contracting

Why do supply chain contracts take the forms that they do? Which contracts should firms adopt to coordinate incentives along a supply chain? This monograph synthesizes the theory of contracts along supply chains. It integrates developments from two largely separate literatures, the management science literature on supply chain coordination and the economic literature on vertical control.

[1]  J. Tirole,et al.  The economics of career concerns, part I: Comparing information structures , 1999 .

[2]  J. Geanakoplos,et al.  Multimarket Oligopoly: Strategic Substitutes and Complements , 1985, Journal of Political Economy.

[3]  Oliver Hart,et al.  Firms, contracts, and financial structure , 1995 .

[4]  Fernando Bernstein,et al.  Incentives and Commonality in a Decentralized Multiproduct Assembly System , 2007, Oper. Res..

[5]  Gillian K. Hadfield Problematic Relations: Franchising and the Law of Incomplete Contracts , 1990 .

[6]  B. Wernerfelt,et al.  On credible delegation by oligopolists: a discussion of distribution channel management , 1989 .

[7]  Benjamin Klein,et al.  Why 'Hold-Ups' Occur: The Self-Enforcing Range of Contractual Relationships , 1996 .

[8]  H. Marvel,et al.  Resale Price Maintenance and Quality Certification , 1984 .

[9]  Christopher S. Tang,et al.  Designing Supply Contracts: Contract Type and Information Asymmetry , 2004, Manag. Sci..

[10]  Gérard P. Cachon,et al.  Purchasing, Pricing, and Quick Response in the Presence of Strategic Consumers , 2009, Manag. Sci..

[11]  M. Katz Game-Playing Agents: Unobservable Contracts as Precommitments , 1991 .

[12]  Steven M. Shugan,et al.  Managing Channel Profits , 2008, Mark. Sci..

[13]  Erica L. Plambeck,et al.  Implications of Renegotiation for Optimal Contract Flexibility and Investment , 2004, Manag. Sci..

[14]  William P. Rogerson,et al.  THE FIRST-ORDER APPROACH TO PRINCIPAL-AGENT PROBLEMS , 1985 .

[15]  M. Slade,et al.  Exclusive contracts and vertical restraints : empirical evidence and public policy , 2008 .

[16]  Michael Salinger,et al.  Simple Economics of the Price-Setting Newsvendor Problem , 2011, Manag. Sci..

[17]  Ralph A. Winter,et al.  Output Shares in Bilateral Agency Contracts , 1995 .

[18]  P. Rey,et al.  Resale Price Maintenance and Interlocking Relationships ∗ , 2008 .

[19]  Gérard P. Cachon,et al.  Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations , 2005, Manag. Sci..

[20]  Ralph A. Winter Presidential Address: Antitrust Restrictions on Single‐Firm Strategies - Restrictions Antitrust Sur Les Stratégies D'Une Firme Unique.  , 2009 .

[21]  Xuanming Su,et al.  Intertemporal Pricing and Consumer Stockpiling , 2010, Oper. Res..

[22]  B. Klein Fisher—General Motors and the Nature of the Firm* , 2000, The Journal of Law and Economics.

[23]  Fangruo Chen Decentralized supply chains subject to information delays , 1999 .

[24]  Nancy Gallini,et al.  Dual Distribution and Royalty Fees in Franchising , 1992 .

[25]  Daniel Granot,et al.  A Three-Stage Model for a Decentralized Distribution System of Retailers , 2003, Oper. Res..

[26]  O. Hart Thinking about the Firm: A Review of Daniel Spulber's The Theory of the Firm , 2011 .

[27]  P. Grout,et al.  Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach , 1984 .

[28]  Ralph A. Winter Vertical Control and Price Versus Nonprice Competition , 1993 .

[29]  J. Tirole The Theory of Industrial Organization , 1988 .

[30]  A. Coughlan Competition and Cooperation in Marketing Channel Choice: Theory and Application , 1985 .

[31]  Gérard P. Cachon,et al.  The Value of Fast Fashion: Quick Response, Enhanced Design, and Strategic Consumer Behavior , 2011, Manag. Sci..

[32]  Victor P. Goldberg,et al.  Quantity and Price Adjustment in Long-Term Contracts: A Case Study of Petroleum Coke , 1987, The Journal of Law and Economics.

[33]  Roman Kapuscinski,et al.  Coordinating Contracts for Decentralized Supply Chains with Retailer Promotional Effort , 2004, Manag. Sci..

[34]  James J. Anton,et al.  Storability, Market Structure and Demand-Shift Incentives , 2003 .

[35]  Janusz A. Ordover,et al.  On the Nonlinear Pricing of Inputs , 1982 .

[36]  Frederick R Warren-Boulton,et al.  Vertical Control with Variable Proportions , 1974, Journal of Political Economy.

[37]  Kevin F. McCardle,et al.  The Competitive Newsboy , 1997, Oper. Res..

[38]  Georgia Perakis,et al.  The Price of Anarchy in Supply Chains: Quantifying the Efficiency of Price-Only Contracts , 2007, Manag. Sci..

[39]  Hongtao Zhang,et al.  Confidentiality and Information Sharing in Supply Chain Coordination , 2005 .

[40]  Herbert E. Scarf,et al.  Optimal Policies for a Multi-Echelon Inventory Problem , 1960, Manag. Sci..

[41]  Anjan V. Thakor,et al.  Firms, Contracts and Financial Structures. , 1996 .

[42]  O. Williamson Transaction-Cost Economics: The Governance of Contractual Relations , 1979, The Journal of Law and Economics.

[43]  Ravi Anupindi,et al.  Centralization of Stocks: Retailers Vs. Manufacturer , 1999 .

[44]  O. Hart,et al.  Property Rights and the Nature of the Firm , 1988, Journal of Political Economy.

[45]  Series Four Formal ( izable ) Theories of the Firm ? , 2002 .

[46]  Fernando Bernstein,et al.  A General Equilibrium Model for Industries with Price and Service Competition , 2004, Oper. Res..

[47]  Roman Kapuscinski,et al.  Quick Response and Retailer Effort , 2010, Manag. Sci..

[48]  B. Klein The Economic Lessons of Fisher Body–General Motors , 2006 .

[49]  C. Shapiro Premiums for High Quality Products as Returns to Reputations , 1983 .

[50]  A. Raman,et al.  Aligning incentives in supply chains. , 2004, Harvard business review.

[51]  Patrick Rey,et al.  The Role of Exclusive Territories in Producers&Apos; Competition , 1994 .

[52]  Hao Wang,et al.  Inventories, Manufacturer Returns Policies, and Equilibrium Price Dispersion Under Demand Uncertainty , 2007 .

[53]  Distribution contracts to support optimal inventory holdings under demand uncertainty , 2009 .

[54]  R. Merton,et al.  Non-Contractual Relations in Business : A Preliminary Study , 2007 .

[55]  C. Shapiro,et al.  Equilibrium Unemployment as a Worker Discipline Device , 1984 .

[56]  Barry Alan Pasternack,et al.  Optimal Pricing and Return Policies for Perishable Commodities , 2008, Mark. Sci..

[57]  Gérard P. Cachon,et al.  Contracting to Assure Supply: How to Share Demand Forecasts in a Supply Chain , 2001, Manag. Sci..

[58]  Francine Lafontaine Agency Theory and Franchising: Some Empirical Results , 1992 .

[59]  B. Klein,et al.  The Role of Market Forces in Assuring Contractual Performance , 1981, Journal of Political Economy.

[60]  H. Demsetz,et al.  Production, Information Costs, and Economic Organization , 1975, IEEE Engineering Management Review.

[61]  Anil Arya,et al.  Benefits of Channel Discord in the Sale of Durable Goods , 2006 .

[62]  Scott E. Masten,et al.  Pretia ex Machina? Prices and Process in Long-Term Contracts , 1991, The Journal of Law and Economics.

[63]  Morris A. Cohen,et al.  Information Sharing in a Long-Term Supply Chain Relationship: The Role of Customer Review Strategy , 2010, Oper. Res..

[64]  J. Mortimer Vertical Contracts in the Video Rental Industry , 2008 .

[65]  Exclusionary Contracts , 2013 .

[66]  Tava Lennon Olsen,et al.  Inventory Management Under Market Size Dynamics , 2008, Manag. Sci..

[67]  M. C. Jensen,et al.  Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit , 1976 .

[68]  J. Dana,et al.  Monopoly Price Dispersion Under Demand Uncertainty , 2001 .

[69]  Tracy R. Lewis,et al.  Optimal Retail Contracts with Asymmetric Information and Moral Hazard , 1994 .

[70]  I. Png,et al.  Returns Policies: Make Money by Making Good , 1995 .

[71]  R. Myerson,et al.  Regulating a Monopolist with Unknown Costs , 1982 .

[72]  P. Ippolito,et al.  Resale Price Maintenance: An Economic Assessment of the Federal Trade Commission's Case against the Corning Glass Works , 1996, The Journal of Law and Economics.

[73]  Paul R. Milgrom,et al.  Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design , 1991 .

[74]  H. Varian,et al.  Price Discrimination , 2004 .

[75]  Mikko Packalen Market Share Exclusion , 2011 .

[76]  Gérard P. Cachon Supply Chain Coordination with Contracts , 2003, Supply Chain Management.

[77]  R. Swinney Selling to Strategic Consumers When Product Value Is Uncertain: The Value of Matching Supply and Demand , 2011, Management Sciences.

[78]  E. Lazear,et al.  Rank-Order Tournaments as Optimum Labor Contracts , 1979, Journal of Political Economy.

[79]  Terry A. Taylor,et al.  Supply Chain Coordination Under Channel Rebates with Sales Effort Effects , 2002, Manag. Sci..

[80]  Yunzeng Wang,et al.  Joint Pricing-Production Decisions in Supply Chains of Complementary Products with Uncertain Demand , 2006, Oper. Res..

[81]  Anthony J. Dukes,et al.  Information Sharing in a Channel with Partially Informed Retailers , 2008, Mark. Sci..

[82]  R. Myerson Incentive Compatibility and the Bargaining Problem , 1979 .

[83]  J. Spengler Vertical Integration and Antitrust Policy , 1950, Journal of Political Economy.

[84]  G. Shaffer Slotting Allowances and Resale Price Maintenance: A Comparison of Facilitating Practices , 1991 .

[85]  Bengt Holmstrom,et al.  Moral Hazard and Observability , 1979 .

[86]  Julian Wright Exclusive Dealing and Entry, When Buyers Compete: Comment , 2009 .

[87]  M. L. Burstein The Economics of Tie-in Sales , 1960 .

[88]  Paul H. Zipkin,et al.  Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain , 1999 .

[89]  Evan L. Porteus Responsibility Tokens in Supply Chain Management , 2000, Manuf. Serv. Oper. Manag..

[90]  R. H. Strotz Theory of Value: An Axiomatic Analysis of Economic Equilibrium. , 1961 .

[91]  Jean Tirole,et al.  Incomplete contracts: Where do we stand? , 1999 .

[92]  Hau L. Lee,et al.  Decentralized Multi-Echelon Supply Chains: Incentives and Information , 1999 .

[93]  O. Williamson,et al.  Markets and Hierarchies: Analysis and Antitrust Implications. , 1977 .

[94]  Ilya Segal,et al.  Property Rights , 2010 .

[95]  Manu Goyal,et al.  Strategic Information Management Under Leakage in a Supply Chain , 2009, Manag. Sci..

[96]  Sanford J. Grossman,et al.  AN ANALYSIS OF THE PRINCIPAL-AGENT PROBLEM , 1983 .

[97]  D. Sappington Limited liability contracts between principal and agent , 1983 .

[98]  Greys Sosic,et al.  Transshipment of Inventories Among Retailers: Myopic vs. Farsighted Stability , 2006, Manag. Sci..

[99]  Francine Lafontaine,et al.  Double-Sided Moral Hazard and the Nature of Share Contracts , 1995 .

[100]  Janusz A. Ordover,et al.  Equilibrium Vertical Foreclosure , 2010 .

[101]  B. Douglas Bernheim,et al.  Common marketing agency as a device for facilitating collusion , 1985 .

[102]  Jeremy I. Bulow Durable-Goods Monopolists , 1982, Journal of Political Economy.

[103]  Gérard P. Cachon,et al.  Competing Manufacturers in a Retail Supply Chain: On Contractual Form and Coordination , 2010, Manag. Sci..

[104]  Ralph A. Winter,et al.  Vertical Control of Price and Inventory , 2007 .

[105]  Tunay I. Tunca,et al.  Supply Auctions and Relational Contracts for Procurement , 2006, Manuf. Serv. Oper. Manag..

[106]  Joel S. Demski,et al.  Optimal incentive contracts with multiple agents , 1984 .

[107]  K. Arrow The Role of Securities in the Optimal Allocation of Risk-bearing , 1964 .

[108]  Massimo Motta,et al.  Exclusive Dealing and Entry When Buyers Compete , 2002 .

[109]  Richard Staelin,et al.  An Industry Equilibrium Analysis of Downstream Vertical Integration , 2008, Mark. Sci..

[110]  Anantaram Balakrishnan,et al.  "Stack Them High, Let 'em Fly": Lot-Sizing Policies When Inventories Stimulate Demand , 2004, Manag. Sci..

[111]  David A. Butz,et al.  Vertical Price Controls with Uncertain Demand1 , 1997, The Journal of Law and Economics.

[112]  E. Gal‐Or,et al.  Information Sharing in Oligopoly , 1985 .

[113]  Christopher S. Tang,et al.  The Value of Information Sharing in a Two-Level Supply Chain , 2000 .

[114]  B. Klein Transaction Cost Determinants of "Unfair" Contractual Arrangements , 1980 .

[115]  Srinivasan Raghunathan,et al.  Retailer- vs. Vendor-Managed Inventory and Brand Competition , 2004, Manag. Sci..

[116]  Margaret E. Slade,et al.  Vertical integration and firm boundaries : the evidence , 2007 .

[117]  Nicholas C. Petruzzi,et al.  Note: The Newsvendor Model with Endogenous Demand , 2001, Manag. Sci..

[118]  Benjamin Klein,et al.  Vertical Restraints as Contract Enforcement Mechanisms , 1988, The Journal of Law and Economics.

[119]  R. Coase The Nature of the Firm , 1937 .

[120]  Xuanming Su,et al.  Intertemporal Pricing with Strategic Customer Behavior , 2007, Manag. Sci..

[121]  Elodie Adida,et al.  Supply Chain Competition with Multiple Manufacturers and Retailers , 2011, Oper. Res..

[122]  Lode Li Information Sharing in a Supply Chain with Horizontal Competition , 2002, Manag. Sci..

[123]  L. Telser Why Should Manufacturers Want Fair Trade? , 1960, The Journal of Law and Economics.

[124]  Abraham L. Wickelgren,et al.  Naked Exclusion, Efficient Breach, and Downstream Competition , 2007 .

[125]  Krishnan S. Anand,et al.  Strategic Inventories in Vertical Contracts , 2008, Manag. Sci..

[126]  R. Kapuściński,et al.  Value of Information in Capacitated Supply Chains , 1999 .

[127]  Maqbool Dada,et al.  Pricing and the Newsvendor Problem: A Review with Extensions , 1999, Oper. Res..

[128]  Preyas S. Desai,et al.  Demand signalling under unobservable effort in franchising: linear and nonlinear price contracts , 1995 .

[129]  L. Preston,et al.  Resale Price Maintenance and Retail Outlets , 1965 .

[130]  Vineet Padmanabhan,et al.  Comments on "Information Distortion in a Supply Chain: The Bullwhip Effect" , 1997, Manag. Sci..

[131]  Alessandro Lizzeri,et al.  Storable good monopoly: The role of commitment , 2006 .

[132]  Fuqiang Zhang,et al.  Strategic Customer Behavior, Commitment, and Supply Chain Performance , 2007 .

[133]  M. Slade,et al.  Inter-Firm Contracts : Evidence 1 , 2010 .

[134]  B. Klein,et al.  Vertical Integration, Appropriable Rents, and the Competitive Contracting Process , 1978, The Journal of Law and Economics.

[135]  Gérard P. Cachon The Allocation of Inventory Risk in a Supply Chain: Push, Pull, and Advance - Purchase Discount Contracts , 2004, Manag. Sci..

[136]  A. Gibbard Manipulation of Voting Schemes: A General Result , 1973 .

[137]  Fernando Bernstein,et al.  Decentralized Pricing and Capacity Decisions in a Multitier System with Modular Assembly , 2004, Manag. Sci..

[138]  D. J. Wu,et al.  Competitive Options, Supply Contracting, and Electronic Markets , 2005, Manag. Sci..

[139]  Ralph A. Winter,et al.  An Economic Theory of Vertical Restraints , 1984 .

[140]  X. Vives Trade Association Disclosure Rules, Incentives to Share Information, and Welfare , 1990 .

[141]  D. Scharfstein Product-Market Competition and Managerial Slack , 1988 .

[142]  Fernando Bernstein,et al.  Decentralized Supply Chains with Competing Retailers Under Demand Uncertainty , 2005, Manag. Sci..

[143]  R. Deneckere,et al.  Demand Uncertainty, Inventories, and Resale Price Maintenance , 1996 .

[144]  Anil Arya,et al.  Using Return Polices to Elicit Retailer Information , 2004 .

[145]  Michael L. Katz,et al.  Vertical contractual relations , 1989 .

[146]  Raghuram Iyengar,et al.  Nonlinear pricing , 2022 .

[147]  Kathryn L. Shaw,et al.  The Dynamics of Franchise Contracting: Evidence from Panel Data , 1999, Journal of Political Economy.

[148]  O. Williamson The Vertical Integration of Production: Market Failure Considerations , 1971 .

[149]  S. Shavell On Moral Hazard and Insurance , 1979 .

[150]  G. Tullock Efficient Rent Seeking , 2001 .

[151]  Evan L. Porteus,et al.  Selling to the Newsvendor: An Analysis of Price-Only Contracts , 2001, Manuf. Serv. Oper. Manag..

[152]  R. Romano,et al.  Double Moral Hazard and Resale Price Maintenance , 1994 .

[153]  Morten Hviid,et al.  LONG-TERM CONTRACTS AND RELATIONAL CONTRACTS , 2000 .

[154]  Marshall L. Fisher,et al.  Supply Chain Inventory Management and the Value of Shared Information , 2000 .

[155]  E. Maskin,et al.  The Implementation of Social Choice Rules: Some General Results on Incentive Compatibility , 1979 .

[156]  Ralph A. Winter,et al.  TERRITORIAL RESTRICTIONS IN FRANCHISE CONTRACTS , 1994 .

[157]  R. Coase,et al.  The Problem of Social Cost , 1960, The Journal of Law and Economics.

[158]  Krishnan S. Anand,et al.  The Strategic Perils of Delayed Differentiation , 2007, Manag. Sci..

[159]  Ilya Segal,et al.  Naked Exclusion: Comment , 2000 .

[160]  O. Williamson OUTSOURCING: TRANSACTION COST ECONOMICS AND SUPPLY CHAIN MANAGEMENT† , 2008 .

[161]  Peter G. Klein Mergers and the market for corporate control , 1994 .

[162]  R. Dorfman,et al.  Optimal Advertising and Optimal Quality , 1976 .

[163]  S. Masten The Organization of Production: Evidence from the Aerospace Industry , 1984, The Journal of Law and Economics.

[164]  Eitan Zemel,et al.  A General Framework for the Study of Decentralized Distribution Systems , 2001, Manuf. Serv. Oper. Manag..

[165]  Bengt Holmstrom,et al.  Moral Hazard in Teams , 1982 .

[166]  Julian Wright,et al.  Exclusive Dealing with Imperfect Downstream Competition , 2005 .

[167]  C. F. Phillips Industrial Market Structure and Economic Performance , 1971 .

[168]  R. Deneckere,et al.  Demand Uncertainty and Price Maintenance: Markdowns as Destructive Competition , 1995 .

[169]  Sanford J. Grossman,et al.  The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration , 1986 .

[170]  W. Oi A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly , 1971 .

[171]  Jasjit Singh,et al.  Agency Costs in a Supply Chain with Demand Uncertainty and Price Competition , 2005, Manag. Sci..

[172]  M. Spence Signaling in Retrospect and the Informational Structure of Markets , 2002 .

[173]  R. Coase Durability and Monopoly , 1972, The Journal of Law and Economics.

[174]  Lode Li Cournot Oligopoly with Information Sharing , 1985 .

[175]  Fernando Bernstein,et al.  Coordination Mechanisms for Supply Chains Under Price and Service Competition , 2007, Manuf. Serv. Oper. Manag..

[176]  Harish Krishnan,et al.  Inventory Dynamics and Supply Chain Coordination , 2010, Manag. Sci..

[177]  Ananth V. Iyer,et al.  Quick Response in Manufacturer-Retailer Channels , 1997 .

[178]  Brian D. Wright,et al.  Technology Transfer under Asymmetric Information , 1990 .

[179]  O. Williamson,et al.  The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting. , 1987 .

[180]  Benjamin Klein,et al.  Vertical Integration as Organizational Ownership: The Fisher Body-General Motors Relationship Revisited , 1988 .

[181]  C. Shapiro Exchange of Cost Information in Oligopoly , 1986 .

[182]  E. Gal‐Or,et al.  Information Transmission—Cournot and Bertrand Equilibria , 1986 .

[183]  P. Ippolito Resale Price Maintenance: Empirical Evidence from Litigation , 1991, The Journal of Law and Economics.

[184]  J. Peck,et al.  Demand Uncertainty and Returns Policies , 1995 .

[185]  Sergei Severinov,et al.  An efficient solution to the informed principal problem , 2008, J. Econ. Theory.

[186]  W. MacLeod,et al.  Reputations, Relationships, and Contract Enforcement , 2007 .

[187]  Ralph A. Winter,et al.  Vertical Restraints Across Jurisdictions , 2014 .

[188]  Kevin J. Murphy,et al.  Relational Contracts and the Theory of the Firm , 1997 .

[189]  Philippe Aghion,et al.  Contracts as a barrier to entry , 1987 .

[190]  Li Jiang,et al.  Supplier Competition in Decentralized Assembly Systems with Price-Sensitive and Uncertain Demand , 2010, Manuf. Serv. Oper. Manag..

[191]  Sudheer Gupta,et al.  Process Innovation, Product Differentiation, and Channel Structure: Strategic Incentives in a Duopoly , 1998 .