Stackelberg equilibria in a continuous-time vertical contracting model with uncertain demand and delayed information

Bernt Øksendal, Leif Sandal, Jan Ubøe
2014 Journal of Applied Probability  
We consider explicit formulae for equilibrium prices in a continuous-time vertical contracting model. A manufacturer sells goods to a retailer, and the objective of both parties is to maximize expected profits. Demand is an Itô-Lévy process, and to increase realism, information is delayed. We provide complete existence and uniqueness proofs for a series of special cases, including geometric Brownian motion and the Ornstein-Uhlenbeck process, both with time-variable coefficients. Moreover,
more » ... it solution formulae are given, so these results are operational. An interesting finding is that information that is more precise may be a considerable disadvantage for the retailer.
doi:10.1239/jap/1417528477 fatcat:kwo54lq2m5fshehlr5rxyv3znm