LAUSR

Abstract This paper investigates an assembly system that consists of one assembler and two suppliers wherein one supplier possesses private cost information. We explore how in such a setting, the contract type (quantity-payment versus two-part tariff) and contracting sequence (simultaneous versus sequential) between the assembler and its suppliers influence the channel and individual firms’ performances. Our results for the basic model show the following: (1) Coordinating the purchase quantities from both suppliers does not always increase the channel’s and the assembler’s profits. (2) The assembler obtains the highest profit under a quantity-payment contract with sequential contracting. (3) The supplier with private information and the channel both prefer a two-part tariff contract over a quantity-payment contract. We also extend our basic model to a case where the assembler contracts with one supplier under a two-part tariff contract and with the other under a quantity-payment contract. We identify the firms’ equilibrium decisions and preferences over different contract types and contracting sequences.