Supply Chain Coordination with Option Contract and Demand Information Asymmetry

This paper deals with the coordination of supply chain composed of a leading supplier and one retailer as a follower under asymmetric demand information. The demand information asymmetry is portrayed by the state of demand forecast information, accordingly the model, the state of demand information is the special discrete distribution, is established. The parameters menus, which are the optimal option price, the optimal option exercise price and transfer payment, are determined. The effect of demand information asymmetry on the efficiency of supply chain coordination is studied by the comparison with that of information symmetry. The results indicate that the option contract can coordinate the supply chain under demand information asymmetry; the supplier can nearly eliminate the influence of information asymmetric through the option menu parameters' design and extract all the channel profit but only leave the retailer the reservation profit.