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Contract design for a closed-loop supply chain considering information asymmetry of remanufacturing process innovation

Senlin Zhao (School of Economics and Management, Shanghai Maritime University, Shanghai, China)
Rongrong Mao (School of Economics and Management, Shanghai Maritime University, Shanghai, China)

Kybernetes

ISSN: 0368-492X

Article publication date: 5 May 2023

Issue publication date: 30 October 2024

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Abstract

Purpose

Asymmetric cost information exists between a supplier and a manufacturer regarding the manufacturer's process innovation for remanufacturing (PIR), which may hurt the supplier's profit. The authors therefore seek to develop a menu of nonlinear pricing contracts for channel information sharing.

Design/methodology/approach

Based on principal–agent theory, the supplier, acting as a Stackelberg leader, designs a menu of nonlinear pricing contracts to impel the manufacturer to disclose its private cost information on PIR (i.e. PIR efficiency). In addition, the authors compare the equilibrium outcomes under asymmetric and symmetric information to examine the effects of asymmetric PIR information on the production policies and profits of the supplier and the manufacturer.

Findings

The proposed contract menu encourages th4e manufacturer to spontaneously share PIR efficiency information with the supplier. Asymmetric PIR information may distort the output of new products upward or downward, but the output of remanufactured products may only be distorted downward. In addition, the manufacturer with high PIR efficiency gains information rent, and interestingly, the increase in the probability of low PIR efficiency amplifies its information rent. Finally, an asymmetric information environment may increase the threshold for the manufacturer to enter remanufacturing.

Originality/value

The authors probe the issue of the supplier's contract design by jointly considering remanufacturing, process innovation and information asymmetry. The paper expands the influencing mechanism of process innovation information in the remanufacturing field. The authors also observe new results that may offer guidance to decision makers.

Keywords

Acknowledgements

The work is supported by the National Natural Science Foundation of China [grant numbers 71702101, 72072111].

Citation

Zhao, S. and Mao, R. (2024), "Contract design for a closed-loop supply chain considering information asymmetry of remanufacturing process innovation", Kybernetes, Vol. 53 No. 10, pp. 3019-3040. https://doi.org/10.1108/K-08-2022-1196

Publisher

:

Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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