Abstract For retailers, carrying inventories may force suppliers to lower wholesale prices in their future transactions. Previous literature on strategic inventories has assumed that the unit production cost of the supplier is negligible. In practice, the production cost is the supplier’s private information. In this research, we study the impact of supplier’s cost misreporting behavior on supply chain decisions in a two-period strategic inventory basic model consisting of a retailer and a supplier. We find that the retailer’s retention of strategic inventories can incentivize the supplier to misreport costs. As the retailer carries inventories, the supplier can misreport a higher cost, thus increasing the wholesale price and supplier’s profit margins. Moreover, we find that misreporting behavior hurts the retailer and exacerbates the double marginalization effect, leading to inefficiency in the supply chain. The supplier’s profit is further improved when the supplier can misreport the different costs in each period. When we consider competition from downstream retailers, only if both two retailers do not hold strategic inventories, can they prevent the supplier from misreporting. The retailer’s detection measures are needed to ensure the coordination role of strategic inventory.

    Highlights We study the impact of cost misreporting on strategic inventories and the supply chain. We characterize conditions for inventory to play a strategic role in supplier and retailer transactions. We find wholesale prices, retailer prices increase because of supplier’s cost misreporting. We highlight implications for supply chain management due to the ignorance of cost misreporting.


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    Title :

    The interplay between strategic inventories and cost misreporting in supply chains


    Contributors:
    Chen, Pengyu (author) / Liu, Xu (author) / Zhou, Pin (author) / Zhu, Stuart X. (author)


    Publication date :

    2022-05-08




    Type of media :

    Article (Journal)


    Type of material :

    Electronic Resource


    Language :

    English




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