The influence of information asymmetry on the strategic inventory of deteriorating commodity

Abstract Strategic inventories are considered a vital bargaining tool for retailers and an essential means to promote supply chain coordination and reduce double marginal benefits. Most previous studies of strategic inventories have been based on two underlying assumptions: the perfect substitution of goods across periods and information symmetry in supply chains. This study examines the far-reaching effects of commodity deterioration and information asymmetry on strategic inventories for a two-period supply chain. In comparing different contracts across various cases, optimal pricing and ordering decisions are determined, and changes in supply chain profits are compared and analyzed. The results show that in the face of deteriorating goods, the manufacturer tends toward a supply chain with asymmetric information. By contrast, the retailer chooses to disclose private information when the deterioration of goods is slow or the holding cost is low. Second, the changes in decision thresholds between the retailer and manufacturer are not synchronous as a result of information asymmetry. In addition, interestingly, both consumer surplus and social welfare tend to have higher product iterations, which is the opposite of the manufacturer's trend. Finally, in terms of supply chain profits, a dynamic contract is always better than a commitment contract when the retailer holds the deteriorating strategic inventory under information asymmetry. Sensitivity analysis is carried out, and relevant managerial insights are provided.