The Method of Eliminating Information Asymmetry in Supply Chains

The Sequential Belief Revision is one of the effective methods of eliminating information asymmetry in supply chains. The paper studies the method of eliminating information asymmetry when a retailer has the private information about the demand and the supplier only partially knows the retailer's optimal decisions, which is in the condition that the supply chain is composed of only a single supplier and retailer and demand quantity is a linear function of retail price. The paper studies a multi-stage Bayesian model that considers retail's cost, and the information asymmetry is eliminated by using Sequential Belief Revisions method. The analysis shows that information of suppliers converges in probability to private information of retailers, the asymmetric information game will also converge in probability to the symmetric information game, and the both convergence results have nothing to do with the initial belief. This paper shows that this method makes supply chain operations more effective and fits general situation to eliminate information asymmetry.