Implications of Barter Exchange and Decision Biases in a Pull Contract

Pull contracts are extensively studied in supply chains, but without considering barter exchange, which can help to handle the excessive inventory. We examine this gap by exploring the implications of barter exchange in a wholesale-price pull contract within the framework of a two-level supply chain. Stackelberg equilibriums are derived when the supply chain agents are rational and biased, respectively. We show that barter exchange induces the retailer to provide a lower wholesale price to the manufacturer and induces the manufacturer to produce more. Barter exchange is beneficial to the retailer and the supply chain system, however, it might harm the manufacturer when the demand volatility is low. We further examine the implications of the supply chain agents' decision biases on barter exchange, where the retailer and the manufacturer may overestimates or underestimate the supply rate of what the retailer needs. When the retailer believes the manufacturer holds the same bias, the retailer's overestimation renders the retailer to offer a lower wholesale price, thereby leading the manufacturer to produces less, implying that the retailer's overestimation enhances double marginalization. The manufacturer's overestimation leads it to produce more. However, when the biased retailer learns the manufacturer's decision bias, the retailer's overestimation results in a higher wholesale price, thereby inducing a higher production quantity of the manufacturer. The manufacturer's overestimation induces a lower wholesale price, and a higher production quantity