# American Institute of Mathematical Sciences

October  2018, 14(4): 1397-1422. doi: 10.3934/jimo.2018013

## Compensation plan, pricing and production decisions with inventory-dependent salvage value, and asymmetric risk-averse sales agent

 1 School of Management, China University of Mining and Technology, Xuzhou, China 2 College of Information Science and Engineering, State Key Laboratory of Synthetical Automation for Process Industries, Northeastern University, Shenyang, China 3 Advanced Modeling and Applied Computing Laboratory, Department of Mathematics, The University of Hong Kong, Pokfulam Road, Hong Kong, China

* Corresponding author: Xinyu Wang

Received  December 2016 Revised  August 2017 Published  January 2018

In this paper, we investigate the joint decision on production and pricing, and the compensation strategy of a supply chain, where the manufacturer relies on a risk-averse sales agent to sell the products. The sales outcome is determined by the sales agent's selling effort and the product price. Most of the previous research about salesforce assumes that the risk attitude to an agent is known to each other and the salvage value is a constant. In this study, we have considered that the salvage value is a function of inventory, and both of the sales agent's selling effort and risk attitude are their private information on the general framework of dual information asymmetric. With the help of revelation principle and principal-agent theory, we have been able to derive the optimal compensation contracts, and joint decision on production and pricing for the manufacturer. Analyzing them and comparing to the symmetric scenario, we found that only the optimal production strategy and the manufacturer's profit depended on the variation rate of salvage value. When the manufacturer comes across asymmetric risk-averse sales agents its profit decreases, whereas the sales agent with private information obtains higher income but exerts less effort, which implies the value of information. The results also mean that the manufacturer should not only focus on offering a lower commission rate to the more risk-averse sales agent, but also on screening his risk information.

Citation: Kegui Chen, Xinyu Wang, Min Huang, Wai-Ki Ching. Compensation plan, pricing and production decisions with inventory-dependent salvage value, and asymmetric risk-averse sales agent. Journal of Industrial & Management Optimization, 2018, 14 (4) : 1397-1422. doi: 10.3934/jimo.2018013
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##### References:
The impact of the sales agent's risk attitude on his optimal effort
The impact of the sales agent's risk attitude on the commission rate
The impact of the sales agent's risk attitude on the price
The impact of the sales agent's risk attitude and the variation rate of salvage value on the production quantity
The impact of the sales agent's risk attitude and the variation rate of salvage value on the manufacturer's expected profits
The impact of the sales agent's risk attitude on her expected profits
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