Abstract:
By now, Supply Chain Coordination is a thoroughly studied and a well understood area. Many discovered insights are fairly intuitive, very convincing and, at this point, seem to belong to textbooks. Consider, for example, a starting point of Supply Chain Coordination, a bilateral monopoly. Without going into details, one could say that, in general, inflexible contracts, such as wholesale price contract, are inefficient because they lead to Double Marginalization, that information sharing is beneficial and that under complete information parties can always design a contract that results in a Pareto‐efficient outcome. However, we argue that these insights can be easily misleading and, sometimes, may be even irrelevant from the practical perspective. The main reason of why and how insights can be potentially misleading comes from the use of game‐theoretic models. One of the insights of game theory itself is that equilibrium outcomes are highly sensitive to even slight modifications of assumptions or a structure of the game. In what follows, we show that the aforementioned well‐established findings, that is Double Marginalization, desirability of information sharing and Pareto‐efficiency under complete information are, in fact, questionable. Our observation is that similarly looking contracting models may come to so different conclusions, that whatever insights could be possibly derived are not likely to be robust.