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<p>Supply chain coordination with a revenue-sharing contract becomes problematic when the retailer has private information. We study a supply chain comprising a risk-neutral supplier with the right to audit and a retailer motivated to under-report sales. While the existing models aim to elicit the retailer’s private information, we seek to maximize the supplier’s profit. The administrative complexity of truth-inducing mechanisms should force the supplier to search for a simple yet effective policy. The retailer is risk-neutral while ordering but risk-averse while under-reporting. We use constant absolute risk aversion (CARA) and constant relative risk aversion (CRRA) to model the retailer’s risk-aversion behaviour. We propose an optimal strategy for both expected utility theory (EUT) and rank dependent utility (RDU) theory and find a threshold audit probability beyond which the retailer is not benefited by under-reporting. The supplier is found to benefit from the retailer’s revenue under-reporting behaviour, defined by the CRRA utility, in an audit-based policy. However, the same result is not observed with the CARA model.</p>

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A supplier’s optimal strategy in a revenue sharing contract for a risk-averse retailer under asymmetric demand information

  • 期刊论文

  • 发表日期：

    2025年7月29日

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  • Jaimini Bhattacharyya,
  • Rahul Ratnakar Marathe,
  • G. Srinivasan

摘要

Supply chain coordination with a revenue-sharing contract becomes problematic when the retailer has private information. We study a supply chain comprising a risk-neutral supplier with the right to audit and a retailer motivated to under-report sales. While the existing models aim to elicit the retailer’s private information, we seek to maximize the supplier’s profit. The administrative complexity of truth-inducing mechanisms should force the supplier to search for a simple yet effective policy. The retailer is risk-neutral while ordering but risk-averse while under-reporting. We use constant absolute risk aversion (CARA) and constant relative risk aversion (CRRA) to model the retailer’s risk-aversion behaviour. We propose an optimal strategy for both expected utility theory (EUT) and rank dependent utility (RDU) theory and find a threshold audit probability beyond which the retailer is not benefited by under-reporting. The supplier is found to benefit from the retailer’s revenue under-reporting behaviour, defined by the CRRA utility, in an audit-based policy. However, the same result is not observed with the CARA model.