Outsourcing Pricing between 3PL and Manufacturer Based on Asymmetric Information

This paper aims to develop a bilateral bargaining model with switching cost to analyze the outsourcing pricing decision between manufacturer and 3PL(third party logistics enterprise). It proposes modeling the pricing process and outlining how switching cost affects the pricing. We opted for game tree to describe the structure of the bargaining game and backward induction to solve the Perfect Bayesian Equilibrium of two-phase bargaining game. It provides the optimal strategies for both manufacturer and 3PL. A novel result is that 3PL with a high degree of patience will not always get more earnings. This paper fulfils an identified need to study how 3PL prices the service he provides for manufacturer. And we take into account switching cost when modeling the pricing process, which is closer to reality.