Browsing by Author "Plambeck, E. L."

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    Delegation vs. control of component procurement under asymmetric cost information and simple contracts
    (Informs, 2013) Kayış, Enis; Erhun, F.; Plambeck, E. L.; Industrial Engineering; KAYIŞ, Enis
    A manufacturer must choose whether to delegate component procurement to her tier 1 supplier or control it directly. Because of information asymmetry about suppliers’ production costs and the use of simple quantity discount or price-only contracts, either delegation or control can yield substantially higher expected profit for the manufacturer. Delegation tends to outperform control when (1) the manufacturer is uncertain about the tier 1 supplier’s cost and believes that it is likely to be high; (2) the manufacturer and the tier 1 supplier know the tier 2 supplier’s cost or at least that it will be high; (3) the manufacturer has an alternative to engaging the tier 1 and tier 2 suppliers, such as in-house production; and (4) the firms use price-only contracts as opposed to quantity discount contracts. These results shed light on practices observed in the electronics industry.