Channel

Dynamic Joint Investments In Supply Chains Under Information Asymmetry

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Executive Summary

Supply chain management involves the selection, coordination and motivation of independently operated suppliers. However the central planner's perspective in operations management translates poorly to vertically separated chains, where suppliers may have rational myopic reasons to object to full in-formation sharing and centralized decision rights. Particular problems occur when a downstream coordinator demands relation-specific investments (equipment, cost improvements in processes, adaptation of components to downstream processes, allocation of future capacity etc) from upstream suppliers without being able to commit to long-term contracts. In practice and theory, this leads of-ten to a phenomenon of either underinvestment in the chain or costly vertical integration to solve the commitment problem.

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