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This paper investigates the capacity investment decision of a supplier who solicits private forecast information from a manufacturer. To ensure abundant supply, the manufacturer has an incentive to inflate her forecast in a costless, nonbinding, and nonverifiable type of communication known as \"cheap talk.\" According to standard game theory, parties do not cooperate and the only equilibrium is uninformative-the manufacturer's report is independent of her forecast and the supplier does not use the report to determine capacity. However, we observe in controlled laboratory experiments that parties cooperate even in the absence of reputation-building mechanisms and complex contracts. We argue that the underlying reason for cooperation is trust and trustworthiness. The extant literature on forecast sharing and supply chain coordination implicitly assumes that supply chain members either absolutely trust each other and cooperate when sharing forecast information, or do not trust each other at all. Contrary to this all-or-nothing view, we determine that a continuum exists between these two extremes. In addition, we determine (i) when trust is important in forecast information sharing, (ii) how trust is affected by changes in the supply chain environment, and (iii) how trust affects related operational decisions. To explain and better understand the observed behavioral regularities, we also develop an analytical model of trust to incorporate both pecuniary and nonpecuniary incentives in the game-theoretic analysis of cheap-talk forecast communication. The model identifies and quantifies how trust and trustworthiness induce effective cheap-talk forecast sharing under the wholesale price contract. We also determine the impact of repeated interactions and information feedback on trust and cooperation in forecast sharing. We conclude with a discussion on the implications of our results for developing effective forecast management policies. This paper was accepted by Ananth Iyer, operations and supply chain management.

This paper determines categories of contracts that facilitate vertical information sharing in a supply chain while precluding horizontal information leakage among competing newsvendors. We consider a supply chain in which retailers replenish inventory from a common supplier to satisfy uncertain demand and are engaged in newsvendor competition. Each retailer has imperfect demand information. Yet one of the retailers (the incumbent) has a more accurate demand forecast than the other (the entrant). Information leakage among such competing retailers precludes vertical information sharing and is often the reason for many retailers to abandon collaborative forecast-sharing initiatives, leading to suboptimized supply chains. We show that whether a contract can prevent information leakage depends on how the inventory risk (i.e., cost of supply–demand mismatch) is allocated among the supplier and retailers in conjunction with the allocation of profits. We categorize contracts according to how they allocate inventory risk among firms when compared with a wholesale‐price contract. This comparison yields four mutually exclusive and collectively exhaustive categories of contracts. A downside-protection contract is one that effectively reduces retailers’ cost of excess inventory by shifting some of their overage cost to the supplier. Examples of such contracts include buy-back and revenue-sharing contracts. An upside-protection contract is one that effectively increases retailers’ cost of inventory shortage by shifting some of the supplier’s underage cost to retailers. Examples of such contracts include penalty and rebate contracts. A two-sided protection contract combines the properties of the previous two categories. A no-protection contract is one that fails to shift firms’ cost of inventory shortage or excess from one to the other. Examples of such contracts include wholesale-price and two-part tariff contracts. We show that no-protection contracts, which are extensively used in practice, cannot prevent information leakage, whereas others may do so. We also show that preventing information leakage could be costly for the supply chain (i.e., low channel efficiency). We conclude by illustrating how our unified framework to study a variety of contracts can enable a firm to determine the best-performing contract (among many) that precludes information leakage while almost coordinating the channel. For example, we show why buy‐back contracts perform significantly better than revenue‐sharing or rebate contracts. This paper was accepted by Serguei Netessine, operations management.

It is common for a retailer to sell products from competing manufacturers. How then should the firms manage their contract negotiations? The supply chain coordination literature focuses either on a single manufacturer selling to a single retailer or one manufacturer selling to many (possibly competing) retailers. We find that some key conclusions from those market structures do not apply in our setting, where multiple manufacturers sell through a single retailer. We allow the manufacturers to compete for the retailer's business using one of three types of contracts: a wholesale-price contract, a quantity-discount contract, or a two-part tariff. It is well known that the latter two, more sophisticated contracts enable the manufacturer to coordinate the supply chain, thereby maximizing the profits available to the firms. More importantly, they allow the manufacturer to extract rents from the retailer, in theory allowing the manufacturer to leave the retailer with only her reservation profit. However, we show that in our market structure these two sophisticated contracts force the manufacturers to compete more aggressively relative to when they only offer wholesale-price contracts, and this may leave them worse off and the retailer substantially better off. In other words, although in a serial supply chain a retailer may have just cause to fear quantity discounts and two-part tariffs, a retailer may actually prefer those contracts when offered by competing manufacturers. We conclude that the properties a contractual form exhibits in a one-manufacturer supply chain may not carry over to the realistic setting in which multiple manufacturers must compete to sell their goods through the same retailer.

We study the performance of a stylized supply chain where two firms, a retailer and a producer, compete in a Stackelberg game. The retailer purchases a single product from the producer and afterward sells it in the retail market at a stochastic clearance price. The retailer, however, is budget constrained and is therefore limited in the number of units that he may purchase from the producer. We also assume that the retailer's profit depends in part on the realized path or terminal value of some observable stochastic process. We interpret this process as a financial process such as a foreign exchange rate or interest rate. More generally, the process can be interpreted as any relevant economic index. We consider a variation (the flexible contract) of the traditional wholesale price contract that is offered by the producer to the retailer. Under this flexible contract, at t = 0 the producer offers a menu of wholesale prices to the retailer, one for each realization of the financial process up to a future time . The retailer then commits to purchasing at time a variable number of units, with the specific quantity depending on the realization of the process up to time . Because of the retailer's budget constraint, the supply chain might be more profitable if the retailer was able to shift some of the budget from states where the constraint is not binding to states where it is binding. We therefore consider a variation of the flexible contract, where we assume that the retailer is able to trade dynamically between zero and in the financial market. We refer to this variation as the flexible contract with hedging . We compare the decentralized competitive solution for the two contracts with the solutions obtained by a central planner. We also compare the supply chain's performance across the two contracts. We find, for example, that the producer always prefers the flexible contract with hedging to the flexible contract without hedging. Depending on model parameters, however, the retailer might or might not prefer the flexible contract with hedging.

Asymmetric pricing or asymmetric price adjustment is the phenomenon where prices rise more readily than they fall. We offer and provide empirical support for a new theory of asymmetric pricing in wholesale prices. Wholesale prices may adjust asymmetrically in the small but symmetrically in the large, when retailers face cost of price adjustment. Such retailers will not adjust prices for small changes in their costs. Manufacturers then see a region of inelastic demand where small wholesale price changes do not translate into commensurate retail price changes. The implication is asymmetric—a small wholesale price increase is more profitable because manufacturers will not lose customers from higher retail prices; yet, a small decrease is less profitable, because it will not lower retail prices; hence, there is no extra revenue from greater sales. For larger changes, this asymmetry in the behavior of wholesale price vanishes as the price adjustment cost is compensated by the increase in retailers’ revenue resulting from correspondingly large retail price changes. We present a formal economic model of a channel with forward-looking retailers and cost of price adjustment, test the derived propositions on the behavior of manufacturer prices using a large supermarket scanner data set, and find that the results are consistent with the predictions of our theory. We then discuss the implications for asymmetric pricing, channels, and cost of price adjustment literatures, as well as public policy.

Assembly and kitting operations, as well as jointly sold products, are rather basic yet intriguing A decentralized supply chains, where achieving coordination through appropriate incentives is very important, especially when demand is uncertain. We investigate two very distinct types of arrangements between an assembler/retailer and its suppliers. One scheme is a vendor‐managed inventory with revenue sharing, and the other a wholesale‐price driven contract. In the VMI case, each supplier faces strategic uncertainty as to the amounts of components, which need to be mated with its own, that other suppliers will deliver. We explore the resulting components' delivery quantities equilibrium in this decentralized supply chain and its implications for participants' and system's expected profits. We derive the revenue shares the assembler should select in order to maximize its own profits. We then explore a revenue‐plus‐surplus‐subsidy incentive scheme, where, in addition to a share of revenue, the assembler also provides a subsidy to component suppliers for their unsold components. We show that, by using this two‐parameter contract, the assembler can achieve channel coordination and increase the profits of all parties involved. We then explore a wholesale‐price‐driven scheme, both as a single lever and in combination with buybacks. The channel performance of a wholesale‐price‐only scheme is shown to degrade with the number of suppliers, which is not the case with a revenue‐share‐only contract.

This study aims to analyze the effect of changes in exchange rates on inflation in Indonesia. It is discussed changes in the exchange rate will affect the use of production factors, especially labor production factors which in turn affect inflation. The research was conducted in Indonesia, with a time period of 2000.1-2020.1. The data used is secondary data published by Bank Indonesia. The data analysis method used is multiple regression analysis with the Error Correction Model (ECM) method. The results showed that Error Correction Term was significant, so it could be concluded that the model specification was correct. In the short term, foreign wages have a positive effect on the inflation , while in the long term, foreign wages have a negative effect on infation in Indonesia. Variable the level of domestic wages in the short term is not significant to inflation, while in the long term this variable has a negative and significant effect on inflation in Indonesia. The foreign price variable shows that the foreign price variable has an effect on n the short and long term. For the exchange rate variable, the results of the study show that the exchange rate has a positive effect in the short and long term on inflation. The long term effect is greater than the short term. This shows that the Exchange Rate Pass Through which works through the use of labor in Indonesia has a greater impact in the long term.

We consider a supply chain with a retailer and a supplier: A newsvendor-like retailer has a single opportunity to order a product from a supplier to satisfy future uncertain demand. Both the retailer and supplier are capital constrained and in need of short-term financing. In the presence of bankruptcy risks for both the retailer and supplier, we model their strategic interaction as a Stackelberg game with the supplier as the leader. We use the supplier early payment discount scheme as a decision framework to analyze all decisions involved in optimally structuring the trade credit contract (discounted wholesale price if paying early, financing rate if delaying payment) from the supplier's perspective. Under mild assumptions we conclude that a risk-neutral supplier should always finance the retailer at rates less than or equal to the risk-free rate. The retailer, if offered an optimally structured trade credit contract, will always prefer supplier financing to bank financing. Furthermore, under optimal trade credit contracts, both the supplier's profit and supply chain efficiency improve, and the retailer might improve his profits relative to under bank financing (or equivalently, a rich retailer under wholesale price contracts), depending on his current \"wealth\" (working capital and collateral).

For market players and policy officials, commodity price forecasts are crucial problems that are challenging to address due to the complexity of price time series. Given its strategic importance, corn crops are hardly an exception. The current paper evaluates the forecasting issue for China’s weekly wholesale price index for yellow corn from January 1, 2010 to January 10, 2020. We develop a Gaussian process regression model using cross validation and Bayesian optimizations over various kernels and basis functions that could effectively handle this sophisticated commodity price forecast problem. The model provides precise out-of-sample forecasts from January 4, 2019 to January 10, 2020, with a relative root mean square error, root mean square error, and mean absolute error of 1.245%, 1.605, and 0.936, respectively. The models developed here might be used by market players for market evaluations and decision-making as well as by policymakers for policy creation and execution.

This paper explores the effect of changes in exchange rates on domestic prices, known as Exchange Rate pass Through. The data used in this study are data on the economy in Indonesia in the period 1997.3 to 2017.4. The analytical tool used is multiple regression with the Error Correction model approach. Based on the results of the analysis conducted shows that the effect of the exchange rate on the wholesale price index in the long run is greater than the short run. This shows that the effect of the exchange rate on domestic prices is indirect.The foreign interest rates variabel effect to wholesale price index in the long term, while the domestic interest rates effect in the short and long term. The effect of foreign prices on the wholesale price index is much larger in the short than in the long-term. Meanwhile, the variable of foreign capital in both the short and long-term, it has a positive and significant effect on the wholesale price index.The effect domestic capital variable is different from the ones on foreign capital because in the short term the domestic capital was not significant to the wholesale price index. The effect of domestic capital on the wholesale price index was positive and significant in the long term.The effect of foreign and domestic capitals in the long term on the wholesale price was positive. It suggests that foreign and domestic capital did not substitute each other, but they were complementary.