Contracting under information superiority in a supply chain of subscription-based apps: a comparative analysis

Tal Avinadav, Priel Levy

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

We introduce a game-theoretic analysis for a supply chain of subscription-based apps consisting of a platform and a developer. The demand distribution is common knowledge, but only the platform can substantially reduce the demand uncertainty. The platform then decides whether or not to disclose this information to the developer. Two types of consignment contract are investigated, based on the commission fee charged by the platform: fixed fee and commission rate. For each contract type, we examine two scenarios regarding the platform’s information status: hidden superiority and known superiority. We show that, regardless of the contract type, under hidden superiority, the platform should disclose its private information only when the demand forecast is pessimistic, whereas under known superiority, the platform should always disclose it. We further show that: (a) it is more beneficial for the platform to interact via the fixed-fee contract than via the commission-rate contract, whereas from the developer and the supply-chain perspectives, neither model dominates; (b) the quality and price of the subscription are higher under the fixed-fee contract than under the commission-rate contract; and (c) the greater the demand volatility, the higher the expected profits of the platform and the developer, as well as the quality and selling price of the subscription app.

Original languageEnglish
JournalAnnals of Operations Research
DOIs
StateAccepted/In press - 2023

Bibliographical note

Publisher Copyright:
© 2023, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.

Keywords

  • Commission-rate contract
  • E-commerce
  • Fixed-fee contract
  • Information superiority
  • Subscription-based apps

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