Electronic Data Interchange and Enterprise Resource Planning Technology in Supply-Chain Contracts
Source: Indiana University
The authors examine a model of Information-Sharing contracting with a purchaser that desires to acquire as much of a product as possible at as low a price as possible. The supplier in their model has private information about its limited capacity. They compare two models of information. In the first, the supplier observes capacity and reports the capacity to the purchaser in exchange for a purchase commitment. They designate this contract as the "Supply Chain" contract. In the second, the purchaser is directly linked to the supplier's ERP system using Electronic Data Interchange (EDI). This linkage avoids information asymmetry.