Option contracts for online celebrities as retailers in supply chains

Abstract

The online celebrity economy, also called the internet celebrity economy, is growing rapidly in China. Celebrity retailers are usually demand sensitive and capital constrained. The capital constraints along with information asymmetry often render supply chains inefficient when manufacturers are producing at non-optimal levels. Few studies have shed light on the online celebrity supply chain, especially with respect to options. In this study, we examine how option contracts can coordinate supply chains. We find that a capital-constrained retailer can achieve more profitable orders when given an option. The manufacturer – without the full information of market demand – also benefits from offering an option to the retailer. Our numerical case shows that the options contract generates different payoffs depending on the capital of the retailer.

Keywords:

• online celebrity
• option contract
• capital constraints
• information asymmetry
• supply chain management

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplemental data

Supplemental data for this article can be accessed here https://doi.org/10.1080/00207543.2019.1650977

Additional information

Funding

This work is supported by the Ministry of Science and Technology of China under Grant 2016YFC0503606, by the National Natural Science Foundation of China (NSFC) for Distinguished Young Scholar (Grant 71825007), by the Chinese Academy of Sciences (CAS) Frontier Scientific Research Key Project (Grant QYZDB-SSW-SYS021), by a CAS Strategic Research and Decision Support System Development grants (Grant GHJ-ZLZX-2019-33-3).