A supplier's optimal quantity discount policy under asymmetric information

In the supply-chain literature, an increasing body of work studies how supp liers can use incentive schemes such as quantity discounts to influence buy ers' ordering behaviour, thus reducing the supplier's (and the total supply chain's) costs. Various functional forms for such incentive schemes have b een proposed, but a critical assumption always made is that the supplier ha s full information about the buyer's cost structure. We derive the optimal quantity discount policy under asymmetric information and compare it to the situation where the supplier has full information.