Endogenous information acquisition in supply chain management (Q1037671)

The authors study the optimal acquisition of information in a supply chain model consisting of a supplier and a buyer, who faces random demand. The buyer can choose to purchase information on the demand before placing an order. In an integrated setting, where buyer and supplier are owned by the same firm and a central decision maker exists, it is shown that the expected profit is concave in the information acquisition level. In the decentralized setting governed by a wholesale price contract it is shown that the information acquisition level is no more than that in the integrated setting if and only if the wholesale price is greater or equal than unit selling price minus unit cost. Finally, supply chain coordination under other contracts (quantity discount, quantity flexibility, and buy back) is studied.