Incentive-Compatible in Dominant Strategies Mechanism Design for an Assembler under Asymmetric Information

Abstract

Assembly systems, in which various components are sourced from multiple suppliers and assembled into the final product, which is sold to external customers, are found in a variety of industries. In many practical settings, the assembler possesses incomplete information regarding the marginal cost of each supplier. This lack of complete information poses a challenge for the assembler in designing contract mechanisms. In this paper, we investigate the assembler's contract design problem by proposing a contracting mechanism that can significantly outperform an alternative mechanism that was previously presented in the literature, especially when the uncertainty regarding customer demand is sign..