Abstract:

Industrial internet technology transforms theequipment service environment where performance-based service becomes an emerging business model and the suppliers have an information advantage on the equipment， which leads to asymmetric information in performance-based contracting （PBC） between the supplier and the customer. The supplier possesses two types of equipment， i.e. the high and the low reliability. Considering two scenarios where the supplier's repair capacity can be verified or not， the PBC design problem is modeled in the framework of the signaling game and the signaling-with-renegotiation to obtain the optimal contract and the supplier’s equilibrium capacity. In addition， how the interaction mechanism between the PBC and the verifiability of repair capacity signals the equipment type is further investigated. Equilibrium and simulation outcomes confirm the following conclusions： When the supplier’s repair capacity is verified， the supplier signals high-reliability information to the customer by multiple and flexible PBCs with higher fixed payments and higher penalty rates as well as a lower repair capacity， and meanwhile the equilibrium repair capacity and the supplier’s service profit both achieve the first-best level； when the repair capacity is unverifiable， by contrast， the supplier adopts a unique PBC with a high fixed payment and ultra-high penalty rate to signal information about types， resulting in overinvestment in repair capacity and supply chain inefficiency， and limiting the flexibility of the PBC. These findings reveal the advantage of the verifiability of the repair capacity and suggest that suppliers should utilize industrial internet technology to timely disclose service effort information to customers and then eliminate inefficiency caused by information asymmetry.

Key words: asymmetric information, performance-based contracting, signaling games, equipment service model