Asymmetric demand information´s impact on supply chain performance and relationship under price-only contract

Recently a large amount of work has been devoted to contract design to coordinate supply chain under asymmetric information. To facilitate the necessity of complex contract design, we need to clearly analyze the impact of asymmetric information on performance and relationship. In this paper we consider a two-echelon supply chain model in which a manufacturer sells products under a price-only contract to a retailer facing a typical news-vendor problem. The retailer knows more precisely about the demand distribution than the manufacturer for his familiarity and direct contact with customers. He is required to report or share demand forecasting to the manufacturer. We prove that if the demand distribution is IGFR function he has an incentive to send a higher CV demand signal to the manufacturer so that his profit increases and the manufacturer´s decreases. We also find a counterintuitive result that supply chain performance increases with the information distortion. The manufacturer is aware of the retailer´s incentive and doubts the information reported. Then there´s a signaling game, in which the retailer sends demand distribution signal to the manufacturer and the manufacturer chooses to trust or distrust the reported information. We prove that honest information sharing is impossible under price-only contract and the retailer´s self-interested behavior weakens partnership.