Abstract: The mechanism designing theory is utilized to discuss the incentive mechanism under asymmetric information and price elastic demand. The optimal retailing prices and the profits of supply chain members are analyzed under two situations: the centralized control and decentralized gaming, and then the supplier’s incentive mechanism designing are studied when the retailer’s cost is unknown. Thus the subprime results and prerequisite with pareto are obtained. Finally, the change of the supply chain members’ profits with the asymmetric information incentive mechanism and the influence of this mechanism on the system’s efficiency via a numerical simulation are dicussed.

Key words: supply chain coordination, asymmetric information, elastic demand, mechanism design