UC Berkeley

A fundamental decision for any manufacturer is when to sell to a downstream retailer. A manufacturer can sell either early, i.e., well in advance of the selling season, or late, i.e., close to the selling season. This paper examines the impact of information asymmetry, retailer sales effort, and contract type on the manufacturer’s sale-timing decision. We find that if information is symmetric, demand is not influenced by sales effort, and the contract specifies that the price paid is linear in the order quantity, the manufacturer prefers to sell late. This result extends to the case where the retailer exerts sales effort during the selling season. However, if the retailer exerts sales effort prior to the selling season or has superior information about market demand, the manufacturer may prefer to sell early. We characterize the manufacturer’s sale-timing preference in these settings, providing clear conditions under which the manufacturer prefers to sell either early or late. We show that the retailer, manufacturer, and total system may be hurt by the retailer’s having higher-quality information.