The Cause and Countermeasure of the Bullwhip Effect Explained in the Economics

The bullwhip effect that exists universally in the supply chain affects the efficiency of the total operation of the supply chain. This paper analyzes the bullwhip effect phenomenon by the principal-agent theory, and considers it stems from the structure of the supply chain. In other word, any pair in a supply chain with business relation all has a bidirectional principal and agent partnership. This kind of partnership is caused by incomplete information and imperfect contract, including the lacking of effective prompting and supervising mechanism that result the repeated secondary choices of goals and aim between the principal and the agent. This paper builds a two-phase mathematic supply chain model in the case of asymmetric information and studies the information sharing problem on the basis of principal-agent theory. The results show that the producer can spirit up the retailer by price discount, market reassigning, and allowance, as return for the sharing of information