Asymmetric information in subcontracting decisions: the effects of the first mover advantage

  • Emanuela Delbufalo
  • Marina Monsurrò
Keywords: information asymmetry; subcontracting; manufacturer; supplier; signalling; screening

Abstract

Purpose of the paper: The article analyses, in an adverse selection set-up, the effects of the first mover advantage in subcontracting decision between a manufacturer and a supplier in the situation of asymmetric information.

Methodology: The study proposes a game theory model to analyze a supply chain consisting of a single risk-neutral supplier and a single risk-neutral manufacturer facing a contract definition problem.

Results: The model suggests the strategies to obtain a more convenient arrangement for the manufacturer both in screening and signaling framework.

Research limitations: The empirical examination with real-life data needs to be expanded and performed in a cross-sector context.

Practical implications: The model helps the manufacturer in designing the appropriate arrangement for subcontracting relations and extracting hidden information from the suppliers.

Originality of the paper: Our approach provides a comprehensive quantitative analysis of the effects of the first mover advantage in manufacturer-supplier relationships.

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Published
2019-12-20