The Impact of the Manufacturer-Hired Sales Agent on a Supply Chain with Information Asymmetry

This paper studies the impact of a manufacturer-hired sales agent on a supply chain comprising a manufacturer and a retailer. The sales agent is working mainly at the retailer’s location in order to boost the demand. We focus on a wholesale price contract, under which the retailer decides how much to order from the manufacturer. The information structure within the supply chain and the efficiency of the sales agent affect the supply chain members’ expected profits. We show that, due to the agency issue between the sales agent and the manufacturer, when the retailer’s demand forecast accuracy is similar to the manufacturer’s and the wholesale price is fixed, the retailer’s profit is decreasing in his demand forecast accuracy. We also illustrate that when the retailer’s forecast accuracy is much better than the manufacturer’s and the wholesale price is endogenous, his expected profit is decreasing in his forecast accuracy. Moreover, we demonstrate that having a more efficient sales agent is beneficial for the retailer when the wholesale price is fixed, whereas it is not always the case when the wholesale price is determined depending on the efficiency of the sales agent. ∗The authors thank Steve Graves, the anonymous Associate Editor and the three anonymous referees for their detailed and extremely helpful comments and suggestions. They also thank Mark Daskin and Terry August for valuable comments and discussions.